Extension
Date of this Version
1978
Abstract
This NebGuide contains information on understanding the basis aspect of hedging.
The producer who wants to employ hedging as a marketing alternative needs to understand "basis." Hedging as used here is the selling of a futures contract to establish a price for a commodity the producer has on hand that will be sold at some later date. An example is corn held in storage in November that the producer plans to sell in May. This is formally known as a selling hedge. In hedging the producer is establishing in advance the price he will receive when the grain is sold and the hedge is lifted. The price that is received when the commodity is sold on the futures market is not the actual price the producer will ultimately receive. The futures price is the Chicago price for grain, not the Nebraska price, therefore there will be an adjustment made in the Chicago price. This adjustment is the "basis." The basis can cause the producer to either gain an additional profit or to receive a lower price for his product than he anticipated when the hedge was
Comments
© 1978, The Board of Regents of the University of Nebraska on behalf of the University of Nebraska–Lincoln Extension. All rights reserved.