The basis in commodity marketing is defined as which of the following?

The basis in commodity marketing is defined as which of the following?

• A. The difference between cash price and futures price
• B. The difference between forecast and actual yield
• C. The price of crop insurance
• D. The storage cost of the commodity

Answer: (A)

Basis is the difference between the cash price you could receive today and the futures price for the same commodity and delivery month. It is defined as cash price minus futures price. This measure shows how local prices compare to the standardized futures price, reflecting factors like storage costs, transportation, and local supply and demand. It can be either positive or negative and tends to move with harvest timing and market conditions. In hedging, you worry about basis risk—the chance that the relationship between cash and futures prices will change in an unfavorable way. The other options describe related concepts but do not define basis: foregone yield vs forecast error, crop insurance pricing, or storage costs themselves (which can influence basis but are not the basis).

Basis is the difference between the cash price you could receive today and the futures price for the same commodity and delivery month. It is defined as cash price minus futures price. This measure shows how local prices compare to the standardized futures price, reflecting factors like storage costs, transportation, and local supply and demand. It can be either positive or negative and tends to move with harvest timing and market conditions. In hedging, you worry about basis risk—the chance that the relationship between cash and futures prices will change in an unfavorable way. The other options describe related concepts but do not define basis: foregone yield vs forecast error, crop insurance pricing, or storage costs themselves (which can influence basis but are not the basis).