Introduction Basis levels are an effective tool to use for monitoring feeder and fed cattle markets. They not only provide an indicator of the overall mood of the industry, but will also provide signals for pricing opportunities. This module will outline what a cattle basis is, how to calculate it, and how to use it in a marketing plan.
Basis is the difference between the nearby futures market and the cash market.
For Canadian producers this means the difference between an American futures market and a Canadian cash market. Both are located in Chicago, Illinois. A futures contract reflects what traders think cattle will be worth at a specific future time, and the cash market reflects the current market. Therefore, as time passes, cash markets and futures markets typically converge. The difference between the two markets, or the basis, will change over time as the nearby futures month gets closer to the present time.