Weekly Gulf of Mexico cash price minus Kansas City futures price bases for hard‐red winter wheat are hypothesized to be related to export commitments and free stocks, grain embargoes, liquidity, and contract month used to calculate the basis. Regression results suggest that increased (decreased) exports or decreased free stocks cause the Gulf cash price to increase (decrease) relative to futures prices. The grain embargo caused Gulf cash prices to decrease relative to futures prices during the period of the embargo. Contract month was found to significantly affect the basis. Market liquidity issues are not resolved.
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Tilley et al. (1988) studied this question.