Home Ask the ExpertFeed & NutritionShould I be buying "basis"?
 

Should I be buying "basis"?

 
Alta Genetics
June 22nd 2011
I often hear about dairies in my area buying "basis", is this something I should be doing?
 
Dan Florent
United States
June 24th 2011
From the standpoint of a producer, basis ownership of grains or byproducts opens the door to some increased risk. However, once you learn to understand basis, you can use basis buying to lock in feed costs as very attractive values. Basis, which is simply the difference between the physical (cash) price and the futures price of a commodity, can allow a producer to lock in ingredients cost at a fixed spread to the futures price. Before dabbling in basis buying, the buyer will want to have a strong opinion of the seasonal values of the feedstuff they are buying, as well as an opinion of what the futures prices is going to do for each particular timeframe. Depending on supply and demand of the commodity, you will sometimes want to buy basis, and sometimes be better off just owning the flat price.
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