1. Understanding Basis Definition Influence factors Basics of basis
Patterns and trends

2. Basis Basis = Cash – Futures Futures reflect global S&D
Basis reflects the local S&D
Cash = Futures + Basis

3. Basis basics Specific to time and place Typically use nearby futures
Convergence
Less variable than cash
Relatively predictable

4. Basis Factors Relative storage capacity
Transportation availability and cost
Time to expiration
Quality issues

5. Basis

6. Iowa Grain Price Report http://www.ams.usda.gov/mnreports/nw_gr110.txt
NW_GR110 Fri. Jan. 8, IA Dept. of Ag-USDA Market News Interior Iowa Daily Grain Prices
Closing cash grain bids offered to producers as of 2:30 p.m. Dollars per bushel, delivered to Interior Iowa Country Elevators.
Iowa Regions
#2 Yellow Corn
#1 Yellow Soybeans
Range
Avg
Northwest
3.72 – 3.86
3.82
9.55 – 9.64
9.61
North Central
3.82 – 3.91
3.86
9.48 – 9.65
9.59
Northeast
3.82 – 3.99
3.89
9.48 – 9.74
9.60
Southwest
3.64 – 3.85
3.77
9.48 – 9.72
9.63
South Central
3.80 – 3.88
3.84
9.57 – 9.75
9.64
Southeast
3.53 – 3.93
9.54 – 9.72
9.65
Corn basis to STATE AVERAGE PRICE for the CBOT Mar. contract is -.39
Soybean basis to STATE AVERAGE PRICE for the CBOT Mar. contract is -.61

7. Iowa Grain Price Report http://www.ams.usda.gov/mnreports/nw_gr110.txt
NW_GR110 Fri. Jan. 8, IA Dept. of Ag-USDA Market News Interior Iowa Daily Grain Prices
Closing cash grain bids offered to producers as of 2:30 p.m. Dollars per bushel, delivered to Interior Iowa Country Elevators.
March Futures Closing Price
4.23
10.22
Iowa Regions
#2 Yellow Corn
#1 Yellow Soybeans
Avg
Basis?
Northwest
3.82
9.61
North Central
3.86
9.59
Northeast
3.89
9.60
Southwest
3.77
9.63
South Central
3.84
9.64
Southeast
9.65

8. Specific to time and place

13. Price
Basis
Avg
62.55
0.90
Stdev
11.09
3.61
Min
28.77
-10.57
Max
90.43
13.22

14. Basis and price forecasting tool Enter specific information
Location
Date
Weight
Frame score and grade
Sex
Number

15. Specific to time and place

16. Grain Basis vs. Livestock Basis
Grain is a storable commodity and the same grain can be used to satisfy several futures contract delivery months. So grain futures prices tend to be tied to one another.
Livestock is not storable so livestock futures prices for alternative delivery months tend to move independently.
Because grain is a storable commodity, the grain basis is tied closely to grain storage costs and interest costs. Livestock are not storable so there are no storage costs built into the basis.

17. Grain Basis vs. Livestock Basis
An inverse basis in grain futures (cash above futures) is unusual and indicates there is something amiss in the grain industry (lack of transportation, for example). An inverse basis in grains will usually last only for a short period.
An inverse basis in livestock futures is not unusual for distant delivery contracts and can exist for extended periods of time. Only during the nearby futures contract delivery periods do we expect livestock futures to be above cash price.

18. Basis Summary Difference between cash and futures
Reflects local conditions
More predictable than futures
Essential to effective hedging