It’s not as flashy as watching contract futures prices trade from red to green on the weekday exchange, but knowing the price basis for a commodity is an important aspect of marketing for agricultural producers, according to experts with the Texas A&M AgriLife Extension Service.
To help producers get a firm handle on price basis in a particular region of Texas, AgriLife Extension has an online tool available here that lists the different price basis for corn, cotton, sorghum, soybeans and wheat.
“Price basis is the difference between a cash price and the futures price of a particular commodity on a given futures exchange,” said Dr. Mark Welch, AgriLife Extension grains economist in College Station, who along with Emmy Williams, AgriLife Extension program specialist, College Station, provide weekly commodity basis prices in different districts throughout Texas.
“Producers need to be aware of basis,” Welch said. “The futures price that you might be seeing may or may not necessarily reflect the actual local price you will receive. While the futures price might be up, the local basis price might be weak.”
Welch said basis conveys important information about local supply and demand conditions and that can impact a marketing decision.
“Basis, cash contracts, futures price … we need to bring all of this into our thinking when it comes to formulating a marketing plan,” Welch said.
Producers really need to keep basis in mind throughout the year.
“We shouldn’t just focus on the futures price in Chicago, it’s another price you need to manage – it’s a discipline,” he said. “When we check the markets, it needs to be part of our routine.”
Williams said she compiles price reports from grain elevators across Texas each week.
“I compile price reports received from grain elevators via email, some over the phone and some retrieved online, get those inputted and have everything posted usually by Friday,” she said. “The goal is to have this information up as soon as possible by the end of the week for producers to use and incorporate into their marketing plan.”
Welch said price basis is part of the curriculum offered during the annual Master Marketer program, for which the 2015 program is set to be held in January in Amarillo. It’s also part of the weekly wheat and grain market commentary Welch provides and is distributed each week via email.
“Basis is the pliers of your marketing toolbox,” Welch said. “It doesn’t tell you everything, but basis conveys important information about fundamental supply and demand. You can’t do without it. You have to have it.”