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<p>[QUOTE=&quot;justafarmer, post: 1473109, member: 3926&quot;]Let&#039;s just look at this from the simple approach and even it can be somewhat confusing. As for the question of how the CME futures set the cash price for commodities the simple answer is because the futures market is where the cash buyers and sellers hedges are created.</p><p><br /></p><p>For a farmer to lock the cash price for their crop they have to set 2 things - price and basis. A farmer sets their price for a crop using the futures market and set their basis with the entity of which they are going to make physical delivery of their crop. Price is determined from the futures market and basis is the spread (discount or premium) off price a specific buyer is offering for the crop delivered at a specific point in time. A farmer can set price with a hedge by selling futures on the CME but this only generally sets their cash price as it does not set basis. The farmer sets their basis with a different contract (basis contract) ussually with a buyer (grain elevator, mill or such) that is more locally located. At the time of delivery to the enitity which the farmer has their basis contract they close their hedge by buying futures. The point is a farmer makes delivery to the entity with which they have created the basis contract which is seperate from the CME.[/QUOTE]</p><p><br /></p>

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