Cost of carry question

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.
 
Quote from TraDaToR:
....I found a lot of markets where contango exceeded cost of carry. What am I missing?
More...
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:
 
Quote from nazzdack:


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:
More...

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.
 
Quote from TraDaToR:
-----it seems playing cost of carry in spreads is not exactly a pure arbitrage.
-----So if old crop is more valuable than the new one, it means there's a lesser chance to see contango exceeding cost of carry in between crops, right?
-----Is the old crop still redeliverable on a new crop expiry?
More...
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:
 
Quote from TraDaToR:
.....where I can find storage and insurance costs?
More...
From the "usual suspects"-----Cargill, ADM, Continental, Dreyfus, Bunge, Pillsbury, Kelloggs, Nabisco, CPC-Argo, Post, Quaker Oats...... :cool:
 
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!
 
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