Commodity basis is the difference between a local cash price and the relevant futures contract price for a specific time period. Now, if Jane wants to know her basis, she would simply take the cash price and subtract the futures price for each commodity. Basis terminology and movement. When basis is stronger or narrower than normal, the market is providing a financial incentive to make cash sales. When there is a wide or weak basis the market is discouraging cash sales and encouraging storage in the case of crops.
Basis describes separate relationships for crops and livestock.
Therefore, these enterprises are separated in the discussion below. Crops For grain, basis is typically used to indicate current local demand. Strong basis indicates the market wants the grain now. Basis is best used in deciding how to sell. Table 1 shows how a grain producer should respond to certain market situations.