Agricultural Economics Department

 

Date of this Version

September 2003

Comments

Published in Cornhusker Economics, 09/24/2003. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska–Lincoln.
http://www.agecon.unl.edu/Cornhuskereconomics.html

Abstract

Choosing an appropriate basis is critical to using futures and option markets. The NebGuide The Importance of the “Basis” in Trading on the Futures Market,1 states, “If the producer plans to use hedging as a marketing strategy he must first understand basis and its patterns for his local area. He must know how the basis changes over time and how much fluctuation can occur over a short period. He must understand that hedging will not entirely eliminate price risk from marketing. The basis has to be estimated as it can be the key to receiving the expected price, or better. Once a hedge is set, it is the basis that will determine the actual price received.”

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