basis

Basis is the arithmetic difference between the price a grain elevator, cooperative, or commodity merchant actually pays a farmer for delivered crops and the reference futures price quoted on an organized exchange, usually the Chicago Board of Trade or Kansas City Board of Trade. If December corn futures trade at $4.50 per bushel and a local elevator offers $4.35, the basis is $0.15 under futures, often written as "15 under." This number directly determines what money lands in the farm account.

Basis reflects the real costs of moving grain from field to end user: transportation distance, storage, handling, elevator margins, and the time between local sale and eventual delivery into the futures contract. A farmer twenty miles from the nearest elevator pays less basis than one at a rural station, simply because the hauling cost is lower. Basis also shifts with seasonal supply; at harvest when bushels flood in, basis widens (the discount deepens) because elevators face storage gluts and must offer less to manage volume.

Basis trading is a formal strategy: a farmer might sell futures contracts at $4.50 while selling physical grain locally at $4.35, locking in the $0.15 basis and hedging the price risk. The producer then profits if basis strengthens (narrows) later, or at minimum knows the exact floor price. Basis contracts, offered by many elevators, let farmers agree on a date and futures month while pricing the basis separately and later.

Basis varies by crop and location, and understanding it is essential to fair negotiation. Winter wheat basis in Kansas differs from spring wheat in Minnesota. Soybeans typically trade with different basis levels than corn. A farmer who ignores basis and focuses only on the headline futures price is invisible to the real economics of the sale.