AgNet 

Capturing the carry

Kevin

By Jon Scheve

Understanding spreads in the futures market is important for farmers to hedge their positions effectively and can help to maximize a farm operation’s profitability.

What is the spread?

The spread is the price difference between two different contract months.  For instance, on Friday, May 9, the price for each contract month was:

  • May futures – $4.42
  • July futures – $4.50
  • September futures – $4.29

When the nearby month trades lower than the further out month, it is called a carry. The spread between May and July is an 8-cent carry, because the May at $4.42 is 8 cents less than the July at $4.50.  A carry happens when the market needs someone to hold grain in storage until later months.  The bigger the spread, the more incentive for someone to hold the grain longer.

Why is this important?

If done correctly, carry premiums can be a low-risk way for farmers to capture additional profits for their farm operation. … Continue reading