Basis Fixed Contract
The basis portion of this contract is determined or “fixed” at the time the contract is written. Pricing of the futures portion of the contact can be done at a later date. Payment on this contract is made upon final pricing unless the pricing precedes the shipment period.
- Allows the seller the ability to benefit if the futures market rallies before the pricing date on the contract.
- Allows the seller of grain the ability to lock in favorable basis levels if the seller feels the basis market will decline before pricing the futures portion of the contract.
- Allows the seller to deliver grain immediately while still waiting to price the futures portion of the contract at a later date.
- Eliminates storage expense inherent in inventorying grain while waiting for a price rally.
- Eliminates the risk of quality deterioration that is inherent with storing grain.
- Exposes the seller of grain to any potential decline in the futures market.
- Does not allow the seller the ability to take advantage of carry that may be available in the market.
- Payment is not received until grain is priced.