Post on August 24, 2026

CME Group has developed and launched the new sorghum basis futures contract. Trading began Aug. 24, 2026.

After learning of CME’s intention to develop and launch a sorghum basis futures contract, the United Sorghum Checkoff Program funded an independent analysis by agricultural economists from Purdue University and the University of Nebraska. The researchers evaluated whether the contract outlined by CME Group would benefit sorghum producers.

The report recognized the value a well-functioning futures market could offer through improved price discovery and risk transfer. However, the researchers identified several concerns with the contract’s structure and concluded that it faces a high risk of failing to attract sufficient liquidity.

This FAQ explains the contract, summarizes the researchers’ findings and outlines key considerations for producers. The full report is available here.

What is the goal of the sorghum futures contract?

The contract aims to provide a tool for price discovery and risk management in the sorghum market.

Effective risk-management tools can benefit the industry. The central question for stakeholders remains whether this specific design, a physically delivered basis contract tied to CBOT corn futures and using delivery infrastructure based on the Kansas City Hard Red Winter wheat contract, reflects the physical and economic realities of the U.S. sorghum market.

Why could a sorghum futures contract matter?

Sorghum producers often use corn futures to manage price risk. This practice, known as cross-hedging, works because sorghum and corn prices often move in similar directions.

A successful sorghum contract could provide a price signal tied more directly to sorghum market conditions. Its value will depend on consistent trading activity, reliable price discovery and a strong relationship between the futures contract and local cash prices.

What is a basis futures contract?

The sorghum contract quotes the difference between the sorghum price and CBOT corn futures rather than establishing a stand-alone sorghum price.

A participant seeking a flat-price position in sorghum would need two positions: one in the sorghum basis contract and another in CBOT corn futures. This structure could require additional margin, increase transaction costs and add complexity compared with a traditional futures contract.

How does this differ from using corn futures to hedge sorghum?

Producers commonly use corn futures as a cross-hedge because corn provides an established, liquid market with generally tight bid-ask spreads. Research cited in the USCP-funded report supports corn futures as a workable and well-understood tool for reducing sorghum price risk.

The sorghum basis contract seeks to manage the additional risk created by changes in sorghum’s value relative to corn. To replace or improve upon existing cross-hedging practices, the contract must demonstrate better hedging performance that outweighs its additional costs and complexity.

What did the USCP-funded report examine?

The report, “Will the Proposed CME Sorghum Futures Contract Be Good for Sorghum Producers?” evaluated the contract’s potential benefits and risks.

The researchers examined:

  • Previous attempts to establish sorghum futures contracts
  • The effectiveness of cross-hedging sorghum with corn futures
  • The potential for the contract to attract sufficient liquidity
  • The relationship between proposed delivery locations and sorghum production
  • Changes in domestic and export market infrastructure
  • Delivery and price-convergence risks
  • Potential exposure to market manipulation
  • Possible unintended consequences for farm safety-net programs

The researchers concluded that the economic conditions associated with previous failed sorghum futures contracts remain largely unchanged.

What are the key areas of uncertainty regarding the contract’s design?

Several critical questions remain about how the contract will perform in practice:

  • Market liquidity: Previous sorghum futures attempts struggled to sustain participation. Will this contract attract and maintain enough commercial hedgers, market makers, producers, end users and other participants to support reliable price discovery?
  • Delivery geography: The delivery structure draws from the Kansas City Hard Red Winter wheat system. The report found that the proposed delivery area accounts for only 17% of sorghum acres in key producing states, while major production areas and cattle-feeding operations lie farther west. How effectively will this structure represent the broader U.S. sorghum market?
  • Pricing and convergence: Sorghum cash prices can vary significantly among regions. Will futures and cash prices converge as the contract approaches delivery, and how will regional basis differences affect its usefulness?
  • Transaction costs: A participant seeking flat-price sorghum exposure must hold positions in both the sorghum basis contract and CBOT corn futures. Will improved hedging performance offset the additional margin requirements, transaction costs and complexity?
  • Market infrastructure: The report identified substantial changes in the physical sorghum market, including the loss of numerous Gulf facilities that previously handled sorghum. Does the remaining infrastructure support a viable delivery market?
  • Market manipulation risks: The report found that limited deliverable supplies, concentrated ownership of delivery capacity and thin trading could make the contract more vulnerable to corners, squeezes or other price distortions. What safeguards will protect producers and other market participants?
  • Farm safety net: Could changes in sorghum price discovery create unintended consequences for Agriculture Risk Coverage, Price Loss Coverage or crop insurance programs?

Why does producer input matter?

A risk-management tool must reflect the conditions producers face at the farm gate. Producer input helps contract developers and market participants understand regional cash markets, transportation costs, delivery practices, seasonal patterns and existing hedging strategies.

The USCP-funded report provides an independent, producer-focused analysis of the contract’s potential performance. Continued producer feedback will help determine whether the contract works as intended and what adjustments may strengthen it.

Do producers need to deliver sorghum to use the contract?

Not necessarily. Many futures positions close before delivery. However, physical-delivery provisions influence futures prices and convergence, even for participants who never intend to deliver grain.

Producers should understand the contract’s delivery terms, approved locations, quality standards, deadlines and potential obligations before trading.

What should producers evaluate before using the contract?

The USCP-funded report recommends that producers exercise caution and wait until the contract demonstrates deep, sustained liquidity.

Before using the contract, producers should evaluate:

  • Trading volume and open interest
  • Bid-ask spreads
  • The ease of entering and exiting a position
  • Convergence between futures and cash prices
  • The relationship between the contract and their local cash price
  • Historical and expected basis behavior
  • Contract size and how well it fits their production
  • Brokerage, margin and transaction costs
  • The possibility of margin calls
  • Delivery locations, quality requirements, terms and deadlines
  • How the contract compares with cross-hedging through corn futures
  • Guidance from a qualified broker, grain merchandiser or risk-management adviser

A thinly traded market can produce unreliable pricing, high transaction costs and difficulty exiting a position. The report recommends leaving those early risks to larger market participants that can better absorb them.

What role does the Sorghum Checkoff play?

The Sorghum Checkoff funded independent research to evaluate whether the contract’s structure could benefit sorghum producers.

The Sorghum Checkoff does not operate the exchange, establish contract terms or provide individualized trading advice. It will continue monitoring the contract’s performance, gathering producer feedback and sharing verified information as trading data become available.

Where can producers learn more?

Producers should review the official contract specifications and consult a qualified broker, grain merchandiser or risk-management adviser before trading.

The full USCP-funded report is available here.

This information serves educational purposes only and does not constitute financial, legal or trading advice.