Given local cash hog price 47.25 and a basis of 1.75, the nearby futures price is which value?

Given local cash hog price 47.25 and a basis of 1.75, the nearby futures price is which value?

• A. 45.50
• B. 50.00
• C. 47.25
• D. 46.00

Answer: (A)

In livestock markets, basis equals cash price minus the nearby futures price. So if the local cash hog price is 47.25 and the basis is 1.75, the nearby futures price is 47.25 minus 1.75, which equals 45.50. A positive basis means the cash price is higher than the futures price by 1.75. If the futures price were 50.00 or 47.25 or 46.00, the basis would be -2.75, 0, or 1.25 respectively, which doesn’t match the given basis of 1.75. Only 45.50 aligns with that basis.

In livestock markets, basis equals cash price minus the nearby futures price. So if the local cash hog price is 47.25 and the basis is 1.75, the nearby futures price is 47.25 minus 1.75, which equals 45.50. A positive basis means the cash price is higher than the futures price by 1.75. If the futures price were 50.00 or 47.25 or 46.00, the basis would be -2.75, 0, or 1.25 respectively, which doesn’t match the given basis of 1.75. Only 45.50 aligns with that basis.