1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
Chad Hart
Associate Professor 1

2. Carry (or Spread) The price difference between futures contracts
Compare the carry offered by the market to the costs of storing grain from one delivery month to the next.

3. Corn Futures Carry July $4.26 May $4.20 Mar $4.13 Dec $4.02
Date: 4/10/15

4. Soybean Futures Carry July $9.62 May $9.56 Mar $9.53 Jan $9.48
Date: 4/10/15
July $9.62
May $9.56
Mar $9.53
Jan $9.48 4

5. Corn Futures Carry May $6.58 July $6.34 May $6.30 July $6.53
Date: 11/17/11
Date: 4/3/12
May $6.58
July $6.34
May $6.30
July $6.53

6. Inverse Carry
When further out futures are priced at a discount to nearby futures
Usually occurs when demand is strong and the need for the crop is immediate
Can also occur during short crop situations or when there is a large crop coming in after a tight stock situation
Basis is usually stronger in an inverse market

7. Corn Futures Carry
Date: 4/12/13
May $6.58
July $6.41
Sept $5.77

8. Soybean Futures Carry
Date: 4/12/13
May $14.13
July $13.79
Aug $13.39

9. Cost of Ownership
Carry shows the additional revenue that can be obtained from holding on to the crop
But there are costs to holding on:
storage
interest/opportunity costs
These are known as the cost of ownership
If the carry more than covers the cost of ownership, then it’s referred to as “full carry”

10. Storage
Typically, storage costs can be broken down into two categories
An in-out charge: sort of like a flat upfront fee
Periodic charge: the additional cost for each time period
- Could be monthly, weekly, or daily
Charges vary by location (on-farm vs. off-farm)

11. Interest/Opportunity Costs
Costs associated with the lost opportunities you could have had if you sold the grain at harvest and reinvested the proceeds
Figured as:
Cash price at harvest * Short term interest rate
* Months in storage / 12
Or the opportunity cost for each month in storage is:
(1/12)* Cash price at harvest * Interest rate

12. Corn Cost of Ownership
Assumption: Corn is Valued at $3.50/bu 5% APR

13. Soybean Cost of Ownership
Assumption: Soybeans are Valued at $9.00/bu 5% APR

14. Other Factors Moisture levels and drying costs Shrink factor
Transportation costs
Quality issues
Helpful tool to evaluate costs:

15. Seasonal Pricing Patterns
Source: USDA, NASS,
Monthly Price Data

16. Iowa Storage Capacity
Source: USDA-NASS 16 16

17. U.S. Storage Capacity
Source: USDA-NASS 17 17

18. Storage Issues
Source: Hurburgh and Elmore,
ICM News, 10/15/09 18 18

19. Class web site: Lab in Heady 68.
Lab in Heady 68.