Cost of carry question

Discussion in 'Ag Futures' started by TraDaToR, Aug 28, 2009.

  1. TraDaToR

    TraDaToR

    Hello,

    I'm a newbie in calculating the cost of carry for grains and I have some questions regarding interest rates.

    I used the formula given by Ballsofgold in this thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=80938&highlight=WHEAT+COST+OF+CARRY, and given LIBOR is at something like 0.28%, i found a lot of market where contango exceeded cost of carry. What am I missing?

    What are the interest rate used when calculating longer carrying charges? Do you use eurodollar 3 month for 3 month charges and so on?

    Talking about grains, do you calculate the cost of carry between crops in the same manner?

    What are the current storage and insurance costs? Where can I find it?

    Thanks a lot. Interest rates are not my cup of tea.
     
  2. 1) It can be possible that some "lower quality" commodity is pressuring the market beyond what seems theoretically possible.
    2) It can be possible that something "weird" is happening at a specific delivery location that is pressuring the market beyond what seems theoretically possible.
    3) There can be "excessive speculation" that pressures a market merely because of the flow of money that "distorts" a market beyond what seems theoretically possible.
    4) With grains, the deferreds may trade more "expensively" than they should because the grain tends to dry out more, making it more "valuable" than younger & wetter grain. :cool:
     
  3. TraDaToR

    TraDaToR

    Thanks Nazzdack, it seems playing cost of carry in spreads is not exactly a pure arbitrage...LOL

    So if old crop is more valuable than new one, it means there are lesser chances to see contango exceeds cost of carry in between crops, right?

    Is the old crop still redeliverable on a new crop expiry?

    Thanks.
     
  4. 1) Don't use the word "arbitrage" to describe a speculative, spread trade.
    2) If the market is inverted between old crop and new crop, it's highly unlikely that the market will go to full contango before the old crop contracts expire.
    3) Look at the contract specifications to see the maximum age for grain that can be delivered on a contract. :cool:
     
  5. TraDaToR

    TraDaToR

    Thanks a lot.
     
  6. TraDaToR

    TraDaToR

    Still nobody knows where I can find storage and insurance costs?
     
  7. From the "usual suspects"-----Cargill, ADM, Continental, Dreyfus, Bunge, Pillsbury, Kelloggs, Nabisco, CPC-Argo, Post, Quaker Oats...... :cool:
     
  8. TraDaToR

    TraDaToR

    Thanks again.
     
  9. I am also a newbie to carrying costs but did find some info out there by googling. If I remember correctly storage and insurance were limited by the CME and Minn exchange. But it took a while to find the limits, I had to search their sites and found them in some of their docs.

    I also found this site which calculates lot of this for you on a daily basis.

    http://www.obryancommodities.com/MktWatch/fcs.pdf

    This link also does a lot of the math for you....
    http://scarrtrading.com/svt/CarryingChargeCalculator.do

    After I backward engineered/calculated some on my own, it makes a lot more sense!
     
  10. TraDaToR

    TraDaToR

    Thnaks a lot Gianthogweed, that's really useful.:)
     
    #10     Aug 31, 2009