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Marketing 101 - Basis basics

Agriculture.com Staff 02/10/2016 @ 6:54am

"We all know that futures markets are a key driver for cash prices in our local market. If the futures market takes a sharp turn higher today, then you can bet that your local elevator's price has moved up as well," says Kevin McNew, an agricultural economist at Montana State University, and the founder of CashGrainBids.com.

"Likewise, if Chicago futures begin to sink then your local cash price will also move lower. This co-movement of local cash and futures prices is what makes futures markets a good vehicle for hedging and forecasting your local cash price."

However, if soybean futures rally 15 cents will your cash price be 15 cents higher as well?

"Not necessarily," McNew says. "This is because local buyers may adjust their cash price in accordance with how much they need or don't need grain. As such, cash and futures price changes may not exactly match each other over time."

"This dichotomy between cash and futures prices is what is called the basis," he explains.

McNew explains the ins and outs of basis in grain marketing in the latest article in the Marketing 101 series on WomenInAgriculture.org.

When it comes to selling your grain, one-stop selling is probably not a good rule. Shop around your local area and see who offers the best basis. In all likelihood, the best buyer will change from one week to the next.

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