Look up a wheat price online and you will probably find a Chicago (CBOT) futures number. Then a buyer quotes you something different at the silo, and the two never quite match. That gap is not an error. It is basis, and it is where local grain marketing actually lives.
Basis is the difference between local and global
Basis is simply your local cash price minus the futures reference price.
Basis = local cash price − futures price
Futures markets like CBOT set a global benchmark for a commodity. But you do not sell into Chicago. You sell into a port zone or a local buyer, in Australian dollars, for grain of a particular quality, in a particular season. Every one of those differences shows up as basis.
What drives the gap
Several forces push local cash away from the global screen.
- Currency. A US-dollar futures price has to be converted at the AUD/USD rate before it means anything to you.
- Freight and logistics. The cost of getting grain from your farm to port or to the end user.
- Local supply and demand. A big regional harvest, or a nearby feedlot or export shipping slot, can widen or tighten basis fast.
- Quality and protein. Spreads for grade and spec sit on top of the benchmark.
Because those forces are local, basis can be positive, where you are paid a premium over futures, or negative, where you take a discount. And it shifts through the season.
Two farmers can watch the same futures price rise and see their cash bids move in opposite directions. That is basis doing its work.
How to use it
Treat the futures price as your macro signal, the direction of the whole market, and basis as the local translation. When you see a strong futures price, the real question is whether local basis is also firm, because only the two together make up the cash bid you can actually accept.
This is also why a single national-average price is close to useless for a marketing decision. It averages away the basis that determines what you specifically get paid.
Reading the two together
Read the futures screen for direction, then add your local basis to know your real number. A rising benchmark with collapsing basis is not the rally it looks like, and knowing the difference is what separates marketing from guessing.
Run this yourself
Agrivise indexes CBOT and ICE futures into indicative AUD/tonne values and shows you how basis carries them to your silo.
Sources
- Grain Trade Australia: pricing, grades and basis conventions
- ABARES: Australian crop report and port-zone price context
- GRDC: understanding grain price basis
