Basis Contracts

Purpose:

To lock in a good basis level when the CBOT is not satisfactory.

When To Use:

1. When basis is at a good level, and you expect futures prices to increase.
2. To allow for delivery of grain and also allow for price improvement.

Advantages:

1. Allows you to move grain and still take advantage of price increases
2. Allows you to stop storage or DP charges on grain already delivered.
3. Receive a cash advance after delivery. (75% of net value)
4. May be rolled forward if desired by seller, and agreed to with buyer.

Disadvantage:

1. It is a losing transaction in a downtrending market.

Execution:

1. A basis is established before delivery.
2. An advance is given upon request when delivery is completed.
3. A futures price from the CBOT is established during trading hours, either before, during, or after delivery is completed.
4. After delivery is completed and the CBOT price is established, a 100% settlement is made.