Columbia Grain is here to help you cultivate greater returns. Our extensive expertise in contract execution is backed by over 40 years of experience, helping producers like you to navigate changing market conditions around the world.
BASIS CONTRACTING
Basis contracts are typically used when the Basis value of a cash contract is “high” and you think the Basis values will begin to trade lower. A Basis Contract locks in just the BASIS side of the cash contract for a specific month and you will establish the futures at a later date (no later than the 15th of the month preceding the futures month used) anticipating futures to become stronger. Basis contracts can be written while the futures markets are closed – to set the futures side of this contract the futures markets will need to be open and actively trading.
PROS:
- Eliminates downside basis price risk
- Allows you to capture higher futures prices if markets trade higher
- Eliminates storage costings
- Producer can take a 70% advance for cash flow purposes
CONS:
- Basis can strengthen higher than what you locked in
- Risk of futures markets moving lower
FUTURES + BASIS = CASH PRICE
Basis bid on August 15 at your local CGI facility for: Corn
| Futures Month | Futures Price | + | Basis | = | Potential Cash Price |
|---|---|---|---|---|---|
| December | $5.00 (remains open) | +.10 (you lock this in) | $5.10 |
On August 15th, December corn futures are trading at $5.00 and your local CGI facility is bidding basis at +.10; you choose to lock in just the basis portion of your cash contract – anticipating the futures will strengthen at a later date. Let’s say October 15th rolls around and December corn has strengthened to $5.80 – you can now “set your futures” at $5.80, giving you a gross cash contract of $5.90 (which is .80 cents better than what you could have originally sold on August 15).
| Futures Month | Futures Price | + | Basis | = | Potential Cash Price |
|---|---|---|---|---|---|
| December | $5.80 (set your futures) | +.10 (locked in already) | $5.90 |
Practice Sheet
| START BASIS CONTRACT | ||
|---|---|---|
| Futures Price (Current Futures): | ||
| Basis (Locked): | + | |
| Cash Price: | = |
| SET YOUR FUTURES | ||
|---|---|---|
| Futures Price ("Set Your Futures"): | ||
| Basis (Locked): | + | |
| Cash Price: | = |
*New Crop cash contracting must have basis levels available for contracting time frame. This material should be construed as examples of potential uses of marketing tools offered through Columbia Grain and not as trading advice – marketing grain involves substantial risk; you should fully understand that risk before contracting your grain in any marketing tool provided through Columbia Grain – Columbia Grain reserves all rights under the NGFA. Please consult with your local CGI merchandiser on cost associated with this contracting option.