An elevator quotes the price per bushel of soybeans at 25 cents under November futures. The 25 cents is the

An elevator quotes the price per bushel of soybeans at 25 cents under November futures. The 25 cents is the

• A. Spot Price
• B. Basis
• C. Premium
• D. Margin

Answer: (B)

Basis is the difference between the cash (spot) price and the futures price for the same commodity. When soybeans are quoted “25 cents under November futures,” the cash price is 25 cents lower than the November futures price. So the basis is -0.25 per bushel (often spoken as “basis is 25 cents under”). This tells you how today's cash price compares to the futures market and can move as storage costs, local supply and demand, and time to delivery change. As delivery nears, futures and cash prices tend to converge, so the basis often narrows toward zero. This is not the spot price itself, nor a premium, nor margin.

Basis is the difference between the cash (spot) price and the futures price for the same commodity. When soybeans are quoted “25 cents under November futures,” the cash price is 25 cents lower than the November futures price. So the basis is -0.25 per bushel (often spoken as “basis is 25 cents under”). This tells you how today's cash price compares to the futures market and can move as storage costs, local supply and demand, and time to delivery change. As delivery nears, futures and cash prices tend to converge, so the basis often narrows toward zero. This is not the spot price itself, nor a premium, nor margin.