Basis - Basis is the difference between the cash price and the closing futures price on the day the commodity is sold. It is expressed as cash price - futures price. Because basis is the difference between two prices which move in the same general pattern, basis risk is much less volatile than price risk. The futures market is a center for price discovery and price protection. It evolved out of the need to reduce price volatility and manage supply.
Forward contracts are the pre-cursors to today's futures and options contracts.
Futures hedge . Taking a position in the futures market opposite to the position in the cash market. Losses in the future market are offset by gains in the cash market and vice versa. There is no benefit if price moves in a favorable direction. A loss in the futures market exposes the farmer hedger to margin calls.