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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsSelling carry and time is a grain-marketing approach that tries to earn value from the gap between nearby and deferred futures prices, sometimes alongside selling a call option on grain intended for storage. The gap can help pay for storage, but it is not a guaranteed profit: carrying costs, basis changes, price risk and potential option margin calls all matter.
What “carry” means in grain markets
A carry market exists when a deferred futures contract trades above a nearby contract. For example, if a nearby contract is $4.80 per bushel and a later contract is $5.00, the deferred contract is 20 cents higher. That difference is the calendar spread, or carry, between those contract months.
In storable grain markets, the spread reflects what the market offers for holding grain until a later period. CME Group explains that a spread can encourage storage when supplies are plentiful and encourage grain to move out of storage when supplies are tight. The deferred price is a price for a different delivery month, not a promise that a producer will receive that amount for stored grain. CME Group’s explanation of grain intramarket spreads and storage describes the relationship.
When a carry may—or may not—pay for storage
The relevant question is not simply whether deferred futures are higher. Compare the spread with the actual cost of holding the grain over the same period. Costs may include commercial or on-farm storage, insurance, financing, handling and other charges. Local basis—the difference between the local cash price and the relevant futures price—can also change and affect the final cash return.
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CME’s 2024 educational example gives an approximately eight-cent-per-bushel-per-month CBOT corn storage charge and a July-to-September example of 16 cents plus the opportunity cost of capital. Those are exchange-specific illustrative figures, not universal current costs. Check applicable contract terms and your own storage and financing rates. CME’s discussion of calendar spread options and full carry explains why storage charges and the opportunity cost of capital both matter.
- Adequate carry: The spread may compensate for some or all carrying costs, depending on the costs and basis outcome.
- Insufficient carry: The spread may be positive but still too small to cover the expense and risk of storing the grain.
- Narrowing carry or inversion: If nearby futures rise above deferred futures, the market is inverted. That can favor moving grain rather than holding it, though the best choice depends on the farm’s cash needs, costs and local market.
Supply and demand can change the spread while grain is in storage. A producer should not assume that the deferred contract will retain its relative value. CME describes spreads as market signals that can shift with supply conditions; they do not settle the economics for a particular farm or location.
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How the call-option example works
In Bryan Doherty’s August 18, 2023 Agriculture.com article, “Selling Carry and Time,” the author presents a hypothetical example: nearby corn futures at $4.80 per bushel, deferred futures at $5.00, and a $5.50 call option selling for a 15-cent premium. These are scenario inputs, not current prices, an observed result or a recommendation. The article’s account of market conditions is historical, not a current market assessment. Read Doherty’s original article.
The proposed idea is to sell a deferred-month call on some of the bushels targeted for storage. The seller receives the premium, but takes on an obligation tied to the option’s strike price:
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- If futures remain below $5.50 at expiration: The call may expire without value, and the seller keeps the premium, subject to transaction costs and the full risks of the position.
- If futures rise above $5.50 and the call has not been bought back: Exercise can result in a short futures position at the $5.50 strike. The unpriced grain may also become more valuable in a rally, but that does not eliminate futures exposure, basis risk or cash-flow demands.
Doherty describes the hypothetical inventory as potentially being hedged at the strike plus the premium received. That outcome is not automatic: it depends on the option position, the grain’s cash-market value and basis, and the producer’s ability to manage the resulting futures position. A call premium is compensation for taking risk, not free income or a guaranteed improvement to the grain’s sale price.
Risks to weigh before using the strategy
- Physical carrying costs: A positive futures spread may still fall short of storage, insurance, handling and financing expenses.
- Basis uncertainty: Local cash prices may not move in line with futures. A futures hedge does not fix the local basis unless a separate basis decision is made.
- Spread changes: Tightening supplies can narrow the carry or invert the market, changing the incentive to store grain.
- Option exposure: Selling a call limits the premium received while potentially creating a short futures position if exercised. The unpriced grain does not make the short option risk-free.
- Liquidity and margin: Short options require cash capacity to meet margin calls. Doherty explicitly warns that margin calls are likely with short options.
- Changing market terms: Futures prices, option premiums, margin requirements, local basis and storage rates vary by crop, location and date. The 2023 example should not be used as a current quote.
Questions to answer before deciding
Compare the choices using the farm’s actual costs and constraints rather than the headline spread or premium alone:
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- How much of the quoted carry remains after storage, insurance, financing and handling costs?
- How much basis risk remains, and what local cash price would make storage worthwhile?
- Can the operation tolerate a narrowing spread, an inversion or a futures rally that triggers margin calls?
- How many bushels, if any, could be covered by a hedge without creating an unacceptable short futures exposure?
- Would selling some or all of the grain now better meet cash-flow needs than storing it?
The answers depend on the crop, delivery location, contract months, storage arrangement, financing and the producer’s risk capacity. Commodity options and futures may not be appropriate for every operation. Discuss a marketing plan and potential trades with a qualified adviser who understands the farm’s financial circumstances; this illustration is educational, not individualized financial or trading advice.
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