- When it comes to production agriculture, the bottom has been and will continue to be cash price, a value taking into account both futures price and basis.
- However, an understanding of basis, the relationship between futures and cash markets, and its history remains a key read on real fundamentals.
- Also, by tracking basis we can also see when market bubbles start to form, something not easily done in markets lacking a read on intrinsic value.
I saw on social media where a grain merchandising company posted the idea basis doesn’t matter. I understand what it was saying. Grain producers can’t get caught up in the day-to-day fractional swings of basis markets, but rather need to stay focused on the big picture of cash price. That’s why I spend so much time talking about National Cash Indexes, the intrinsic value of markets, because it is there we can see all the factors of the equation come into play based on the age-old equation of Cash = Futures (+ or -) Basis. That being said, the study and understanding of basis is still important in the grand scheme of things.
