Bulk designated purchases for future harvest amounts of grains, including wheat, soy beans and corn, bought at the Chicago Mercantile Exchange are Chicago Board of Trade grain futures. Purchases must comply with CBOT regulations concerning futures purchases, including price quotes, contract specifications, product calendars, and performance bonds and margins.
The futures contracts are standardized agreements in regard to the quantity, quality, time and place of delivery of the grain; only the pricing is a variable. Pricing is set daily by bidders who purchase the commodities based on speculations of its price at the time of delivery. The futures markets are extremely risky and not recommended for all investors. It's possible to lose more than the initial investment.
The price of grains is derived from two different sources: the futures market and the cash market. The cash market is the purchase price being offered by the local grain elevators, processors and handlers.
The difference between the futures price and the cash price is called the basis. The basis rate can vary between different regions and the local grain handlers and is important for calculating futures profitability. Futures grain prices can protect against pricing drops, but it can also prevent some profits should the market rise more than expected.