Series 3: 1.3.4.4.6. Basis Grade

1.3.4.4.6. Basis Grade

Each contract will stipulate a basis grade for the commodity. A basis grade is the grade of a commodity used as the standard or par grade of a futures contract. For cotton, this might be Cotton No. 2 (strict low middling, staple length 1-2/32”). For yellow corn, it may be U.S. No. 2 yellow corn (54 lb. per bushel, kernels 5% damaged and 3% broken). Other deliverable grades are also stipulated in the contract, since there is no guarantee that the seller will be able to deliver the stipulated quality of the product.

The price negotiated by the parties is the price of the basis grade. The price paid for the delivered product will depend on the grade that is delivered. A lower deliv