Cash and futures prices both decrease Cash price decreases faster than the futures price. In this scenario, basis is said to weaken. Knowing that you will sell cattle at a later date and you want to protect against a price decrease, you take a short position in the futures market at this time. At this time you decide the cattle need to go to market. The net price you receive is exactly equal to the original cash price plus the basis gain or loss, less commission.
Futures price decreases more than the cash price.
In this scenario, basis is said to strengthen. Knowing that you will sell cattle at a later date and you want to protect against a price decrease, you take a short position in the futures market at this time. At this time you decide the cattle need to go to market. The net price you receive is equal to the original cash price plus the basis gain or loss less commission. Futures price decreases at the same rate as the cash price.