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"Sell the Carry"

Jan 16, 2020

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Racquel Walters, Grain Marketing Advisor

Forward contracting grain futures is a practical and popular way to market your grain. One of the notable benefits of forward contracting is the flexibility to “sell the carry.” When performed correctly, this can be a simple and effective tool for farmers to increase profitability with little risk.
When the price of a nearby contract month is less than a deferred month, the difference is called the “carry.” To “sell the carry” means to sell the deferred futures month at a greater price than the current or the nearby futures month. As an example, if December 2020 corn is trading at $4.03 and July 2021 corn is trading at $4.19, the $0.16 difference represents the carry.  

How Does This Work?
Step 1 – Pick a price and sell your grain using futures (Futures First Contract).
Step 2 – Decide WHEN you will want to physically move your grain. This determines the month you will capture the carry.
Step 3 – Choose WHERE you will move your stored grain (i.e. the actual location). This will allow you to set the basis.
Selling the carry can be an attractive and profitable marketing strategy. I believe this is a productive strategy for any farm operation to utilize. However, there are things to consider before you chose to apply these practices. 
  1. When the market trades with a carry, this often encourages farmers to store rather than sell. There is a real cost to storing grain, so making sure the carry is still profitable after storage costs are important.
  2. Other costs may include financial items, such as the interest on bonds and/or interest on loans used to make an investment.
  3. Like any Futures First contract, you are still exposed to basis risk if you have not determined a point of delivery and locked in a basis.
  4. During years of “short crops,” the market can go inverted. This means the nearby futures price is higher than deferred months. In this scenario, the market is encouraging farmers to sell now rather than carry it.
At CFS, our team of Grain Market Advisors will provide you with a full spectrum of services. From current market conditions and commentary to specialized contracting and personalized marketing plans, we are here to provide you with the knowledge and tools to make informed and profitable marketing decisions. 

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