Let’s define some terms:
Basis – Basis is the local price of grain relative to the Chicago Board of Trade price including transportation from the local source to Chicago.
Chicago Board of Trade – The Chicago Board of Trade, or CBT for short, is the oldest futures exchange in the world.
Contract – A contract is 5,000 bushels of grain, which corresponds to the capacity of a train car.
Futures – Futures are financial instruments that allow anyone to buy or sell a commodity at a specific price, deliverable to a specific location, at a specific time, and for a specific quantity.
Hedging – Hedging is the process of transferring price risk to the market.
Options – Options are the rights to either buy (calls) or rights to sell (puts) an underlying futures contract at a stated price or strike in a given time window.
WASDE – The World Agricultural Supply and Demand Estimates is a monthly report that contains annual forecasts for the supply and demand of wheat, rice, grains, oilseeds, and cotton