Marketing grain by using basis contracts provides more flexibility in how farmers can market their grain and profit from their crop. Iowa State University Extension grain marketing economist Chad Hart discussed the use of basis contracts at a recent grain management and marketing meeting.
“Typically, when there is a cash price for something, it is thought of as one price,” Hart said. “Basis contracts break that price down into two components: the futures price and the basis. So instead of trying to maximize just one component, farmers can try to maximize both. This gives them more flexibility and an opportunity to get a better cash return than just capturing the highest cash price.”
Knowing how to use basis contracts to lock in a sales price for grain is the focus of Iowa State University Extension and Outreach publication “Understanding Risk in Basis Contracts,” FM 1891. The publication was recently revised and updated by Hart, who is an associate professor at ISU. It’s free at the Iowa State University Extension Store online.
Helps figure out when to sell crops