Summary

The basis or historical difference in the cash and futures price should be used to adjust or localize the futures price. The most accurate basis information is that which can be recorded by beef producers when their cattle are sold. The cash price is for the cattle and what the futures price is on the same day. In hedging with a futures contract, the basis should be used to localize the futures price. This is accomplished by subtracting or adding the basis to or from the futures price.