What Is Basis?

Basis is the difference between the cash (spot) price of a commodity at a particular place and the price of a futures contract on it. In agricultural markets it is usually written as basis = cash price - futures price, so a negative basis means the local cash price is below futures.

How to read it

Grain markets quote basis in cents relative to a named futures month.

Basis	Spoken as	Meaning
-30 cents vs December	”30 under December”	Local cash is 30 cents below December futures
+10 cents vs March	”10 over March”	Local cash is 10 cents above March futures
0	”flat”	Cash equals futures

Financial markets often express it the other way round (futures minus spot), so check which convention a source uses.

A tiny example

Prices are illustrative. In October, a country elevator in Iowa bids $4.10 per bushel for corn. CBOT December corn futures are trading at $4.40.

Basis = $4.10 - $4.40 = -$0.30, or 30 under December.

That 30 cents reflects the cost of getting corn from that elevator to the futures delivery points, storage, local supply and demand, and quality differences.

Why basis changes

• Transport and location. CBOT corn delivery takes place at approved locations in the Chicago area and along the Illinois River. Elevators farther from those points, or from export routes, usually have a weaker (more negative) basis.
• Local supply. Basis often weakens at harvest when farmers deliver lots of grain at once, and strengthens later in the year.
• Storage costs and interest. The cost of carry affects the gap between cash and futures, especially for later delivery months.
• Time to expiry. As a futures contract nears expiry, its price and the cash price at the delivery location converge. Arbitrage pushes them together.

Why it matters to hedgers

A hedger who sells futures against a crop locks in the futures price, but not the basis. The final price they receive is roughly:

futures price locked in + basis when the hedge is lifted

If the farmer above sells December futures at $4.40 and the basis at harvest is -$0.30, the expected net price is about $4.10. If basis weakens to -$0.50 instead, the net is about $3.90, even though the futures hedge worked. That leftover uncertainty is basis risk, covered in how hedging with futures works.

Basis in other markets

• Stock index futures: the gap between the futures and the index reflects interest rates minus expected dividends until expiry. See stock index futures explained.
• Bitcoin futures: the basis between CME bitcoin futures and the spot price is widely watched as a measure of demand for leverage.

In short

Basis is cash minus futures. It narrows toward zero at the delivery location as expiry approaches, it reflects local transport, storage, and supply, and it is the part of the price a futures hedge cannot fix.

Related: How futures prices are set · How hedging with futures works · Contango and backwardation