Antal Fekete has issued another interesting article entitled, "The Last Contango in Washington" in which he informs the reader about 'basis' - something that he describes as 'the best kept secret in economics'.
"Basis is the spread between the nearest futures price and the cash price.
...The best way to think about the business of the grain elevator operator is to assume that he is marketing warehousing services, including the rationing of warehouse space between competing uses. His guiding star is the basis. High and rising basis tells him for which purposes the demand for scarce public warehouse capacity is the most urgent. Low and falling basis tells him for which purposes the demand is slack, as people prefer non-public solutions for their storage problem, e.g., by keeping supplies closer to home, as often happens in troubled times. Including digging holes in one's own backyard.
The idiosyncracies of the basis with regard to monetary commodities, since they can be buried in holes, are quite different from those with regard to non-monetary commodities, which cannot. This will be the subject of the last of this 3-part series on the basis."
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