7 Things You Must Know Before Signing Your Next Basis Contract

1) Is the basis competitive?

You may want to compare today’s basis to historical levels. If it is an attractive basis, ask yourself if it could get better?

2) What is the market outlook?

Are the futures trending higher or lower? If the outlook is for the futures to trend lower, it may not be in your best interest to take a basis contract.

3) What is the outlook for the Canadian dollar?

In general, a rising Canadian dollar can cause the basis to deteriorate, especially for spring wheat. On the other hand, the basis often improves when the Loonie weakens.

4) How much time do you have to price the basis contract?

Basis contracts have expiration dates. If you do not have intentions of pricing the basis contract before the expiration date, is using a basis contract your best option?

5) What futures price should you be targeting?

Is it 30 cents higher? 60 cents higher? 90 cents higher? Is it realistic to attain this futures price before the basis contract expires? Plan to act on pricing your grain when it hits your targeted price.

6) What are your reasons for signing a basis contract?

Make sure you are signing a basis contract for your reasons, such as securing a delivery period when the outlook is for the futures to rally and the basis is expected to get worse.

7) What is the basis telling you?

A poor basis is an indication of a lack of demand and may not be the best time to be selling grain. On the other hand, a good basis is a sign of demand, an indication there may be an opportunity to make a sale.