![]() ![]() Here the futures market becomes a current market like the cash market. For example, at contract maturity both the cash market and the April live cattle futures contract represent market conditions during the April 1 to 20 period. This difference leads to changing basis levels.īasis variability due to comparing current market conditions with future conditions disappears during contract maturity. The two markets do not react exactly the same way to market factors. For example, at contract maturity, basis during early March reflects the difference between the cash price during early March and the April futures contract price with delivery during April. ![]() Conversely, the futures market is an anticipatory market reflecting expectations of future supply and demand conditions. The cash market is a current market reflecting today's supply and demand conditions. The two markets - cash and futures are similar but not identical. If supplies increase, both cash and futures prices tend to fall. If hog supplies decline relative to demand, both cash and futures prices tend to rise. Basis levels remain relatively constant because the cash and futures prices react to similar conditions. What affects basisīasis is less variable than price (cash or futures price). Put another way, the actual basis is expected to be one standard deviation below the average only one sixth (about 16%) of the time. The actual basis is expected to fall in a range from one standard deviation above and one below the average approximately two-thirds of the time. The standard deviation is a measure of variability. The column on the far right in the table is the standard deviation calculated daily for the two week period over the three years that make up the average basis. For example, one of the columns in each table inInformation File Lean Hog Basis and Information File Live Cattle Basis is titled 3-year average basis. Also, the delivery month used is the one with delivery closest to the time when the livestock are marketed.īasis tables are often report the average or expected basis and some measure of basis risk. Lean hog futures trade until the 10th business day of the month. Trading of a delivery month for cattle futures ceases at the end of the futures delivery month. The delivery month must be actively traded during the time when the livestock are marketed. Two criteria are used in choosing the futures contract delivery month. The futures contract delivery month used to compute the basis during each period is shown in column 2 of the basis tables in Information File Lean Hog Basis and Information File Live Cattle Basis. Hog basis is calculated using the the Western Combelt price for 51 to 52 percent lean 185 pound carcass. The basis data are aggregated by approximately two-week periods.Ĭash prices used to compute the live cattle basis are prices at Iowa and Southern Minnesota points for 1,100 to 1,300 pound Choice steers. Hog and cattle basis tables are shown in Information File Lean Hog Basis and Information File Live Cattle Basis. This is opposite from the procedure used for calculating grain basis where the cash price is subtracted from the futures price. A positive sign (+) means that the cash price is higher. A negative (-) sign before the basis number means that the futures price is higher than the cash price. ![]()
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