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A CME grain or oilseed futures quote is the exchange price for a standardized contract and delivery month; a cash price is what a buyer offers for physical grain at a particular place and time; basis is the difference between those prices. In grain markets, basis is commonly calculated as local cash price minus the relevant futures price. That is why a local bid can be higher or lower than the futures quote—and why a futures price is not a guaranteed price for grain at your farm or elevator.
What the three prices mean
Futures, cash and basis describe connected but different parts of a grain or oilseed price. Treating them as interchangeable can lead to a mistaken estimate of what a delivery location will pay or what a hedge has secured.
- Futures price: The exchange-traded quote for a specified commodity contract and delivery month. The contract has standardized terms, including its quantity, unit and delivery provisions.
- Cash price: A physical-market bid or transaction price for grain at a particular location, for a particular delivery period and quality. A local bid can vary from another buyer’s bid or from a quote at another point in the supply chain.
- Basis: The local cash price minus the price of the relevant futures contract. It describes the cash-futures spread; it is not a separate exchange-traded price.
The relationship can be written as cash price = futures price + basis. That identity is useful for separating the exchange-market component from the local component of a quote. It does not mean that every cash bid is derived from one identical futures month or that a futures quote is an offer to buy your physical crop.
How to calculate basis from a bid
First match the cash quote with the commodity and a relevant futures delivery month. Convert both prices to the same unit and currency, then subtract futures from cash. For grain quotes stated in dollars per bushel, the calculation is:
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Basis ($/bu) = local cash price ($/bu) − relevant futures price ($/bu)
These are arithmetic examples, not current market quotes:
| Local cash price | Relevant futures price | Calculation | Basis description |
|---|---|---|---|
| $4.20/bu | $4.35/bu | $4.20 − $4.35 = −$0.15/bu | 15 cents under |
| $4.40/bu | $4.35/bu | $4.40 − $4.35 = +$0.05/bu | 5 cents over |
A negative result means cash is below futures: the basis is described as “under.” A positive result means cash is above futures: the basis is “over.” The amount is the difference, expressed in the stated unit. For instance, a 15-cent-under basis is a 15-cent-per-bushel discount to the futures price in this example; it is not a futures price of 15 cents.
What makes a basis strong or weak
“Strong” and “weak” refer to the direction of the cash-futures spread, not whether the cash or futures market has risen or fallen outright. A basis strengthens when it becomes more positive or less negative; it weakens when it becomes less positive or more negative.
- A change from 50 cents under to 40 cents under is a stronger basis, even though cash remains below futures.
- A change from 20 cents over to 15 cents over is a weaker basis, even though cash remains above futures.
Local conditions help explain why the spread changes. Relevant factors include local supply and demand, transportation availability and cost, handling and storage, grain quality, and the availability of substitute supplies. Those influences can make the cash bid at one location differ from a bid elsewhere even when both buyers refer to the same futures market.
Futures and basis can also move in different directions. If futures rise but basis weakens, the cash price may still rise, fall or stay nearly unchanged depending on the size of each move. The relationship cash = futures + basis makes the combined effect explicit; the futures direction alone does not tell you the change in a local bid.
How to compare a local bid with CME futures
Before drawing a conclusion from a bid or calculating a basis, line up the details that determine whether the two numbers are comparable. A mismatch—such as the wrong futures month or unit—can produce a misleading spread.
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- Select the relevant futures contract. Confirm that it is the same commodity and choose the nearby or otherwise relevant delivery month for the cash quote. Do not assume a futures quote for one month is the right reference for every cash offer.
- Match units and currency. Put cash and futures on the same price basis before subtracting. For corn, CME’s contract specification lists a 5,000-bushel contract quoted in U.S. cents per bushel. Contract terms are specific to that contract; check the current specification and dates before relying on them.
- Calculate cash minus futures. Keep the sign. A negative result is under; a positive result is over.
- Compare like with like over time. When evaluating whether basis has strengthened, compare quotes for the same commodity, location, delivery timing, quality assumptions and futures month, or account for any change in those details.
The corn specification should not be generalized to all grain and oilseed contracts. Standardized contract terms differ by commodity and contract. Check the applicable contract details—especially quantity, quotation unit, delivery provisions and relevant dates—rather than assuming corn’s terms apply to soybeans or another product.
How basis affects a hedge
A futures hedge can offset some of the exposure to an outright price move, but it does not fix the cash-futures spread unless the physical sale or purchase is also priced. The remaining uncertainty in the basis is called basis risk. In practice, a hedge therefore involves both the futures market and the local cash market.
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Producer selling grain with a short hedge
A producer who expects to sell physical grain may use a short futures position as a hedge. The expected net sale price depends on the futures price used in the hedge and the basis ultimately received when the grain is sold. In CME’s wheat illustration, a producer sells physical wheat and holds a short July futures hedge. With expected basis 35 cents under, the intended sale price is the futures price less that discount. If basis at sale is 30 cents under instead, the net sale price improves by five cents relative to that expectation; if it is 40 cents under, it is five cents worse.
For this seller, a stronger basis at the time of the physical sale is favorable relative to the expected basis, while a weaker basis is unfavorable. That comparison is about the spread; it does not say whether futures rose or fell during the hedge.
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Buyer using a long hedge
A buyer with a long futures hedge is exposed to the cash price needed to acquire physical grain. For the buyer, the basis effect reverses: a stronger basis raises the effective purchase price relative to the expected spread, while a weaker basis lowers it. A hedge can reduce exposure to futures-price changes without guaranteeing the local purchase price, because the cash bid still reflects the basis at the time and place of purchase.
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These hedge examples explain the direction of the basis effect, not a guaranteed outcome. The realized cash-futures relationship can differ from the basis anticipated when a hedge is placed. The exact result also depends on the contract month and the prices at which the physical transaction and futures position are established and offset.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why futures and cash tend to converge near delivery
As delivery month approaches, the cash price and futures price tend to converge because delivery provisions tie the futures contract to the physical market. This relationship is one reason the delivery terms matter when interpreting a futures quote. Convergence does not mean that a local cash bid must exactly equal a futures quote at every location or moment; local transportation, handling, quality and other market conditions still matter.
Most futures positions are offset or rolled rather than taken through delivery. A trader who closes or rolls a position is not thereby completing a physical grain sale at the futures price. For readers comparing a local bid with an exchange quote, the practical point is to use the appropriate contract month and understand that delivery mechanics support convergence as delivery nears, while local cash terms remain location-specific.
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- Calling futures the local cash price: A futures quote is for a standardized exchange contract, not a guaranteed bid for grain at a farm, elevator or other local delivery point.
- Reversing the subtraction: Grain basis is commonly calculated as cash minus futures. Subtracting cash from futures flips the sign and changes “over” to “under,” or vice versa.
- Comparing mismatched contracts or units: A cash quote and futures quote need a relevant commodity and month, plus a consistent unit and currency, for the difference to be meaningful.
- Assuming a negative basis cannot strengthen: A move from a larger discount to a smaller discount is strengthening even if cash remains under futures.
- Assuming a hedge removes all price uncertainty: A futures hedge addresses exposure to futures-price moves but leaves basis risk; the local spread may differ from the expected one.
- Expecting local cash and futures to match everywhere: Delivery supports convergence near the delivery period, but cash bids reflect local conditions and need not match the futures price exactly at every place or time.
A quick interpretation checklist
When you see a grain or oilseed bid described as “10 under,” interpret it as a cash price 10 cents per stated unit below the relevant futures price, assuming the quote is using the customary grain-basis convention. Before using it to compare offers or assess a hedge, establish:
- Which commodity and quality the bid covers.
- Where and when physical delivery is expected.
- Which futures delivery month the buyer uses as its reference.
- Whether both prices use the same unit and currency.
- Whether the basis is positive or negative, and whether a change is stronger or weaker.
Those details turn a bare futures quote or basis label into a usable comparison: futures describes the standardized exchange contract, cash describes the local physical offer, and basis quantifies the spread between them.
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