Basis, while a simple concept, is often a difficult concept for many a producer. Basis is simply the net difference between the price that is paid for a commodity locally for a select period of time, and the price that is paid for that period at the Chicago Mercantile Exchange, or CME. Many factors play into the overall value of basis, including local supply and demand for a commodity, together with the cost and availability of transportation to move that good to another location, the availability of local storage, as well as the price of substitutes, crop quality, condition of the crop, and the overall psychology of the buyer.
Basis can ebb and flow with seasonal tendencies, or pattern the buyers’ business cycle. It is important for producers to understand the rhythm and history of basis in their local market to capture opportunities locally.
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