Basis

Basis is the difference between the local cash price of a commodity and the price of the related futures contract, usually quoted as cash minus futures.

Basis is what connects a futures price on a screen to the price a farmer, elevator, or mill actually receives. A futures contract is written for one grade at one delivery point. Everywhere else, the local cash price differs because of freight to the delivery point, local supply and demand, quality, and storage availability. That difference is the basis.

Basis is quoted as a number under or over the futures price. A grain elevator far from the river might bid “under” the Chicago contract because grain must be trucked and barged to reach an export terminal. In a region where a drought has left processors short, the basis can turn strongly positive even while futures are flat.

For a hedger, basis is the risk that remains after hedging. Futures protect against a broad price move; basis moves are local and cannot be fully hedged with a standard contract. Grain markets often say a hedge converts price risk into basis risk. See spot vs futures and hedging.