If the expected corn basis in December is $0.30 per bushel and the December futures price is $3.20, what is the expected December cash price?

If the expected corn basis in December is $0.30 per bushel and the December futures price is $3.20, what is the expected December cash price?

• A. $2.60
• B. $2.90
• C. $3.20
• D. $3.50

Answer: (B)

Basis shows how far the cash price is from the futures price. Here, the December basis is 0.30 and the December futures price is 3.20. Using the convention in this context, cash price = futures price minus basis: 3.20 − 0.30 = 2.90. So the expected December cash price is 2.90 per bushel. If you used a different sign convention for basis, you’d get a different number (e.g., 3.50 if cash were calculated by adding the basis), but with the given basis sign, 2.90 is the correct result.

Basis shows how far the cash price is from the futures price. Here, the December basis is 0.30 and the December futures price is 3.20. Using the convention in this context, cash price = futures price minus basis: 3.20 − 0.30 = 2.90. So the expected December cash price is 2.90 per bushel. If you used a different sign convention for basis, you’d get a different number (e.g., 3.50 if cash were calculated by adding the basis), but with the given basis sign, 2.90 is the correct result.