Explaining Basis Risk A FEW TIPS ON AVOIDING HARD FEELINGS FROM YOUR FORWARD CONTRACT CUSTOMERS

摘要

Dennis Inman, vice president of Car gill AgHorizons, Minneapolis, MN (952-742-2501), offers the following tips on explaining basis risk to producers. He spoke in December at the National Grain and Feed Association s 2006 Country Elevator/Feed Industry Conference in Kansas City, MO. Farmers frequently enter cash forward contracts leaving the basis portion of the pricing formula open. There is only one good reason for them to do so—they believe basis will narrow from currently offered levels, and they are willing to accept the risk that they might not improve and may get worse.