Understanding Risk in Basis Contracts

Robert N. Wisner

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Basis contracts are marketing instruments that establish the basis (the difference between the local cash price and futures price) used to determine the price paid for grain or soybeans at a later time. That is the only component of price risk that basis contracts establish or lock in for the producer. The producer or other seller bears the risk of any changes in price level over the life of the contract as reflected by nearby futures prices. He or she also bears any relevant spread risk that may develop over the life of the contract if it uses a later futures delivery month than the nearby contract. Basis contracts add flexibility to producer marketing of grain and soybeans. While they are not useful every year, basis contracts can be a helpful marketing tool at times when the basis is much stronger than normal and when market conditions suggest a further rise in prices is quite likely.

Date: 1997-02-01
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:2034

Access Statistics for this paper

More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().