Differential

A differential is the price gap between a specific commodity grade or delivery point and the benchmark it is quoted against, stated as a premium or a discount.

A differential expresses one number: how far a specific commodity lot’s price sits from the benchmark used to describe the whole market. It can run positive, a premium for something better or more convenient, or negative, a discount for something lower quality or harder to reach. Cotton from a small, remote growing region might be quoted at a discount to the Cotlook A Index because buyers must arrange extra logistics to collect it.

Differentials often move independently of the benchmark itself. A benchmark can stay flat for months while the differential for a specific grade widens because a competing region’s crop failed, redirecting buyers toward the one grade left. Reading only the benchmark price without checking the relevant differential can badly misstate what an actual buyer or seller experiences in a physical trade. See benchmarks explained.