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. For instance, assume you are a corn producer who believes the corn price is high and basis is strong relative to historical patterns. Sell in the cash market, because there is little opportunity to better the current market price through storage or by taking a futures position. Soybean basis for Lamar and Sikeston, Missouri, for September 1998 through August 1999.