November 24, 2020

Ask the Grain Expert: What Do I Need to Know About Basis?

Karl SetzerGrain Solutions Team Leader Karl Setzer offers his insights into different grain marketing topics here periodically. If you have a topic you’d like Karl to address in future issues of My Solutions or posts, e-mail us at cmeyer@maxyieldcooperative.com, or ksetzer@maxyieldcooperative.com. You can also view his daily market commentary, at www.MaxYieldGrain.com.

Q: What do I need to know about basis?

A: Basis is the difference between the local cash bid and the Chicago Board of Trade futures price. In normal years, corn prices are 30 to 35 cents under the futures, but lately they’ve been 30 to 35 cents over futures.

Think of basis as a throttle or a choke. When there’s a lot of grain coming in, basis weakens, which throttles things down. When more grain is needed, basis improves to throttle things up.

While basis is the difference between cash prices and futures prices, there’s a little bit more involved. Beyond basic supply and demand, which influences our cash bids, there’s an elevation charge, which reflects the cost to move grain in and out of the bin or elevator. In addition, we have to account for shrink on the grain, transportation costs, interest costs on stored grain, and other costs of operation.

As I tell all my clients, don’t get hung up on basis. Worry more about cash prices, because they pay the bills.

 

 

Share Your Thoughts

*