Large difference between a cash-market price and the related futures price, often creating hedge or delivery risk.
A wide basis in a futures market means the spread between a cash-market price and the related futures price is unusually large. Basis is commonly measured as:
A wide basis can be positive or negative. What matters is whether the difference is large relative to normal seasonal, location, quality, and delivery-month behavior.
| Driver | How it can widen basis |
|---|---|
| Local supply disruption | Cash prices move sharply while exchange futures lag or reference a different location. |
| Storage or transportation constraint | Physical logistics become more valuable than paper exposure. |
| Grade or quality mismatch | The cash commodity differs from the futures deliverable grade. |
| Delivery-month pressure | Nearby futures reflect delivery rules, position limits, or roll pressure. |
| Interest and carry changes | Financing and storage economics shift the futures curve. |
| Liquidity stress | Sparse cash or futures trading makes prices less aligned. |
Basis risk is the reason a futures hedge may not perfectly offset a cash-market exposure. A grain elevator, refiner, airline, or metal processor can be directionally hedged and still lose money if local cash prices and the futures contract move differently.
Example: if a firm sells futures to hedge inventory but its local cash price falls more than the futures price, the hedge may not fully protect the realized sale price. The futures gain may offset part of the loss, but the changed basis still matters.