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Ripon, WI | I have always looked as basis as the supply and demand side of a grain price. The Chicago Board of Trade is the corner post and cash prices are derived from them. As with the Board prices, if there are more sellers than buyers, the basis gets wider, thus making the cash prices received more distant from the Board price. Likewise when there are more buyers than sellers, the spread will decrease. There is much talk about basis being so wide, but is it really? It must be good enough because corn is flowing. It's funny how unimportant basis becomes when cash prices are high.
Basis numbers are calculated by the end user of the products. This would include ethanol plants, feed mills and even China. Their job is to spend as little as they can for grain, just as your job is to sell it as high as possible.
Edited by Subzoot 4/7/2011 09:34
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Explanation of Basis
