Basis: Why Your Price Isn't the World Price

Every price this site tracks is a benchmark - a single number standing in for a market that actually has thousands of different prices at once, one for every local buyer and every delivery point. The gap between that benchmark and what you'd actually get paid at a specific place and time is called basis, and it's one of the most practically important numbers in agriculture that almost never makes headlines.

What basis actually is

Basis is local price minus benchmark price. If the world wheat benchmark is $250/mt and your local elevator is bidding $235/mt, your basis is −$15/mt. Elevators almost always bid below the benchmark, for the reasons below - a positive basis, where the local price pays more than the benchmark, is unusual and tends to signal a genuine local shortage. Basis isn't a flaw in the pricing system - it's the mechanism by which one global number gets translated into an actual local transaction price.

What drives the gap

Transport is the biggest factor for most sellers: physically moving grain from your farm to wherever the benchmark price is actually delivered costs real money, and the further you are from a major delivery point or port, the wider your basis usually runs. Local supply and demand matter just as much - a processing plant or feedlot right next to you creates demand that competes with the wider world for the same grain, which can narrow basis or even flip it positive; a bumper local harvest with limited local storage does the opposite. Elevators also build their own storage and carrying costs into what they bid. And the benchmark itself specifies a grade - protein content, moisture, damage - that your actual crop rarely matches exactly, so a quality discount or premium gets folded into basis too.

A worked example

Say the world corn benchmark for delivery in three months is $210/mt. Your local elevator, 60 miles from the nearest river terminal, is bidding $195/mt today for that same delivery window - a basis of −$15/mt. A neighbor 5 miles from the terminal is quoted $205/mt, a basis of only −$5/mt, purely because of the shorter, cheaper haul. Neither number is "wrong" - both accurately reflect what it actually costs to get grain from each farm to the terminal.

Basis moves on its own

Basis isn't fixed - it widens and narrows independently of the benchmark price, on its own schedule. It typically narrows as delivery time approaches, as uncertainty about local supply and demand resolves, and can swing sharply around harvest, when local storage fills up and elevators drop their bids to slow the flow of grain coming in. A futures hedge locks in the benchmark price, but not your basis - which is exactly why basis risk is treated as a genuinely separate risk from price risk, not something a futures position automatically removes.

Why this matters even if you never hedge

Every seller, hedged or not, sells at basis relative to a benchmark whether they think about it that way or not. Tracking what your local elevator actually pays relative to the benchmark over time, not just today, is one of the highest-value, lowest-cost things you can do with the price data on this site: it turns "the world price is $250" into "so my price is probably around $235" - the number you can actually act on.