BASIS CONTRACT

A BASIS CONTRACT is a contract where the basis is set and futures are left open. The basis is the current futures month being chosen minus the cash price for the specific delivery period. This contract would be used where the basis looked attractive to the producer, but they thought futures were going higher. When a basis contract is done, grain title is transferred to DMG at the time the contract is established. The final cash price will be determined at some time in the future when the futures are set. Once futures are set, basis is subtracted (or added) and the final cash price determined.

There are numerous basis contracts that could be established with various delivery options.  The local DMG location can provide the  details.

ADVANTAGES: The contract can take advantage of futures price increases; no storage charges; an advance may be given once the grain is delivered.

DISADVANTAGES: The contract is tied to a specific basis, futures month and Exchange; have price risk through futures market exposure; contract is not protected by any statutory warehouseman's bond or grain dealers' bond coverages.