Basis is the difference between the futures market and the cash grain bid. Historically, basis varies throughout the growing season, being closest in the spring and summer, and widest in the fall. Basis depends on location, transportation costs, and transportation availability. A farmer living closer to Chicago or major river terminals will receive a higher cash grain bid than a farmer living in Central Iowa, since the farmer near Chicago is closest to the market. Producers wanting to use strictly cash marketing have the opportunity to use forward contracts with individual elevators.
Forward contracts guarantee a certain price on a specific date, for a specific type of commodity.
For example A 1,000 acre cash grain farmer with an average yield of 120 bushel per acre, in the spring, feels that the corn acreage is up and ideal weather conditions could produce a bumper crop. Come fall, farmers harvest record yields of corn. The use of agricultural futures markets to buy and sell grain is sometimes complicated and frustrating. It will take time, patience and money to begin trading on the futures. We hope that the various worksheets, quiz and examples will aid in your learning process.