Grains Flashcards
What is a positive basis?
The cash price is over the futures price, when the futures price is taken away from the cash price
What is a negative basis?
A negative basis is when the futures price is higher than the cash price, so when you take it away from the cash price you have a negative number
What is the basis?
Cash price minus the futures price
Why is the basis important?
It effects the final outcome of the hedge
If in March a wheat producer wants to sell his crop to a local elavator in mid June, what option shoidk he establish?
He should establish a short position in the wheat futures market for July.
If the price for wheat is €6.50 a bushel. Normally in his arwa mid June the price per bushel is 35 cents under €6.50. What is the basis?
- 35
What is a strong and weak basis?
The more positive the basis, the stronger it is. The more negative a basis is, the weaker it is.
A basis that is weaker than expected…
Decreases the selling price
Net selling price =
Futures market price + basis
How does basis effect performance of a lomg hedge?
Long Hedgers benefit from a weakening basis.
Short Hedgers benefit from…
A strengthening basis
Buyers and sellers reduce price risk by….
Assuming basis risk. Basis risk is usually lower than price risk.
Why does cash price differ from markets futures price?
Futures prices are adjusted for variables such as freight handling and storage, and supply and demand.
What is the price difference between the futures price and cash price known as?
The basis
What is the basis
Cash price minus fritures price
