ASK CLARA: When Corbitt Wall says some feeders might “take lower money because of the basis,” what exactly does he mean, and how does that impact the overall cash market?

ASK CLARA:  When Corbitt Wall says some feeders might “take lower money because of the basis,” what exactly does he mean, and how does that impact the overall cash market?

When Corbitt Wall says some feeders might "take lower money because of the basis," he’s talking about a pricing strategy tied to hedging.

🔍 Here’s what he means:

• Basis = the difference between the cash market price and the futures market price (in this case, for live cattle).

• As of Tuesday, the April Live Cattle futures were trading around $206, while last week’s cash price was well over $212—creating a positive basis of $6+.

• If a cattle feeder has hedged (i.e., locked in a price using futures), and they sell cattle at a lower cash price (say $210), they still gain on their futures hedge because of that positive basis.

📉 Why would they accept lower cash?

Because if they’ve hedged their cattle on the board (at lower levels), selling now at steady cash money ($210) still gives them a net positive result due to the basis difference.

⚠️ Corbitt’s warning:

He’s cautioning that if too many producers do this, it can undercut the broader cash market—especially in the Southern Plains—by accepting lower money before the board has a chance to move up. This weakens collective leverage and can drag down prices for everyone.

So in short, they’d make money on the hedge, but potentially harm the cash market by accepting less than they could have held out for.

Disclaimer:

CLARA provides market insights, analysis, and data for informational purposes only. All content, including futures pricing, market trends, and forecasts, is not financial or trading advice. Market conditions are subject to rapid changes, and past performance is not indicative of future results. Users should conduct their own research and consult with qualified financial professionals before making trading or investment decisions. CLARA is not responsible for any financial losses or decisions made based on the information provided.