Price discovery mechanism

The method by which the price for a particular shipment of a commodity is determined. Factors taken into account include quality, delivery point, and the size of the shipment. For example, if the price of corn is $3.50 per bushel on the CBOT, the local price of corn per bushel can be discovered by taking into consideration the distance from Chicago that corn would have to be shipped, the difference in quality between local and Chicago corn, and the amount of corn to be transported. Once these factors are considered, both the buyer and seller can arrive at a reasonable price for their area.