Goods and Grain

Plain-English explainers on how grain and farm commodities move from field to market.

Grain Markets

What Does Basis Mean in Grain Markets?

Basis is the gap between a local cash grain price and the futures price. Learn how it is calculated, what moves it and why it matters.

3 min read

Ask a grain buyer for today's price and the answer often comes in two parts: a futures number and a basis number. The second part is easy to overlook, yet it often decides whether a local bid is attractive or poor. Here is what basis means and why traders watch it closely.

The simple definition

Basis is the local cash price minus the futures price for the same commodity. If December corn futures are at $5.00 per bushel and a local elevator bids $4.70, the basis is minus 30 cents. Traders usually say 30 under.

The arithmetic is simple: 4.70 − 5.00 = −0.30.

Why the basis exists

Futures contracts represent a standardized grade of grain delivered at specific locations. Your local market is not one of those locations, and your grain may not be exactly that grade. Basis captures the difference. It reflects:

  • Transportation costs from your location to the main markets or ports.
  • Local supply and demand. Plenty of grain nearby widens the basis, while strong local processing demand narrows it.
  • Storage and handling costs, including the cost of holding grain and the interest on money tied up in it.
  • Quality factors such as moisture and test weight.
  • Timing. The basis for delivery now is different from the basis for delivery next summer.

Wide and narrow, strong and weak

A wide basis means the cash price is far below futures, for example 50 cents under. A narrow basis means the gap is small, for example 15 cents under. When the basis moves from minus 50 to minus 15, it is said to strengthen, which is good for the seller. When it moves the other way, it weakens.

Here is a quick comparison for futures at $5.00:

  • Basis of −0.50 gives a cash price of $4.50.
  • Basis of −0.15 gives a cash price of $4.85.

That 35 cent difference can be larger than the move in futures over several days.

Seasonal habits of basis

Basis often follows a seasonal pattern. At harvest, farms deliver large volumes and storage fills, so elevators widen the basis to discourage more grain. Later in the marketing year, as supplies tighten and buyers need grain, the basis often narrows. Patterns differ by region, crop and year, so local history is more useful than a general rule.

Why producers should track it

Futures prices get most of the headlines, but a producer sells at the cash price. Tracking your own local basis history helps you judge whether today's bid is typical, high or low. Some contracts, known as basis contracts, let you fix the basis now and set the futures price later, which separates the two decisions.

A simple way to start

  1. Record the local bid and the matching futures price on the same day each week.
  2. Calculate the basis and keep a running list.
  3. Compare with the same period last year.
  4. Ask your elevator what is driving the current number.

Frequently asked questions

Is a bigger basis number always bad? It depends on the sign and whether you are buying or selling. For a seller, a basis closer to zero or above is better. For a buyer, the reverse is true.

Can basis be positive? Yes. When local demand is very strong or supplies are short, the cash price can be above futures, giving a positive basis, also called over.

Does every commodity have a basis? Any commodity with a futures contract and a separate cash market has one, though how traders quote it varies.