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An Introduction to Basis

Joe Parcell and, Jason Franken (August, 2011)

Summary

Commodity basis provides a significant amount of information to agricultural producers and agribusinesses for making production, forward pricing, hedging and storage decisions. Basis tends to follow historical and seasonal patterns, and by understanding these patterns, a producer or agribusiness person can make better management decisions and reduce risks involved in those decisions. Many persons believe that understanding basis patterns is the most fundamental means of evaluating marketing decisions. This guide provides an overview of commodity basis and explains the different ways it applies to crops and livestock.