Spot, Forward and Futures Prices: Three Ways to Price the Same Commodity

Ask "what's the price of corn?" and the honest answer is: which price? A spot price, a forward price and a futures price can all differ for the exact same commodity at the exact same moment, because each one answers a slightly different question about when and how a deal actually gets done.

Spot price: buy now, deliver now

The spot price is what a buyer pays for a commodity available for essentially immediate delivery - a grain elevator's posted cash price for corn today is a spot price. It reflects current local supply and demand directly, including whatever local factors are in play at that moment, which is part of why the spot price at one elevator can differ from another's just a short distance away, a gap covered in more detail in the basis article.

Forward price: agree now, deliver later

A forward contract is a private, individually negotiated agreement between two specific parties to buy and sell a set quantity of a commodity at a set price, for delivery at a specified future date. A farmer might forward-contract part of an unharvested crop with their local elevator months before harvest, locking in a price now for grain that doesn't exist yet. Because it's a private, non-standardized contract, a forward price reflects whatever the two parties negotiated - it isn't published or centrally observable the way an exchange price is, and it carries the risk that the other party might not perform when delivery comes due.

Futures price: a standardized, exchange-traded version of the same idea

A futures contract does the same basic job as a forward - fixing a price today for a transaction that settles later - but it's a standardized, exchange-traded instrument rather than a private negotiation. The exchange sets the contract size, quality specification and delivery months, prices are public and continuously updated as they trade, and a clearinghouse stands behind every trade, which removes the counterparty-default risk a private forward carries. The mechanics of how that standardization actually works are covered in the futures markets article.

Why the three prices usually don't match

The gap between the spot price and a futures price for delivery months away isn't noise - it reflects the market's honest assessment of storage cost, interest cost, and expected supply and demand conditions between now and that future delivery month. A forward price, being individually negotiated, can also diverge from the futures price for the same delivery window, often because it's priced off the futures market as a reference point but then adjusted for the specific local basis, quality, and logistics of that one deal. None of the three is "the real price" - each is the correct answer to a different question about when, where, and how the transaction actually happens.