Basis is defined as the difference between the local cash market and a futures contract price

Basis = Cash Price - Futures Price

Basis is the price differential that results because producer cash market transactions occur at different locations and times, and involve different types of cattle than the feeder or live cattle futures contracts. Basis forecasting is an established method of forming future price expectations for agricultural commodities. Using basis expectations, producers can attach relevance to current futures price expectations.

Basis forecasting can be useful when estimating expected sale or purchase prices at the conclusion of a futures or options hedge, when evaluating a current cash market quote, and when evaluating forecasted cash prices.