Price Basing

Futures, as in futures contracts, give us the ability to see into the future.

No, really.

When you use the prices in futures contracts of a commodity to determine the retail price of that commodity in the future, that’s price basing. No voodoo to see here, folks. Take gas, for instance. When futures prices of gas go up, it’s on the news, with everyone a-speculatin’ that prices at the pump will go up soon, too. Since futures contracts delay the transaction—the delivery and payment—until later, price basing is often on point.

Besides helping consumers, it also helps commodity sellers price their stuff. If they can get some info on futures contracts based on their commodity (whether it’s beef or gas or steel), then they’re getting a lot of useful info for the future. Without price basing, these firms would have to do a lot more research to determine how to price their commodities.