What Futures Spreads and Basis Tells Us

A DTN/Progressive Farmer article

Perhaps the most challenging aspect of working within the grain markets is choosing which indicators to rely on to guide decision-making. At DTN, the primary goal of our Six Factors strategies is to simplify a market's drivers into manageable, yet powerful, tools to allow for timely and confident marketing decisions. One factor monitored is the "Commercial Outlook," which includes grain basis and futures spreads -- two significant components that are often overlooked as clear indicators of a market's true underlying conditions.

Whether it be USDA reports, technical (chart)-based signals or seasonal patterns, all are valuable tools at a marketer's disposal. However, one key advantage to the incorporation of cash-market-driven indicators such as spreads and basis is that it helps filter out the short- to medium-term "noise" present in futures alone.

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