LONG-THE-BASIS

A person who owns the physical commodity and hedges his position with a short futures position is said to be long-the-basis. He profits from the basis becoming more positive (stronger); for example, if a farmer sold a January soybean futures contract at $6.00 with the cash market at $5.80, the basis is -.20. If he repurchased the January contract later at $5.50 when the cash price was $5.40, the basis would then be -.10. The long-the-basis hedger profited from the 10› increase in basis.