Cost of Carry

The full cost of holding a commodity, storage, financing, and insurance, minus convenience yield.

Overview

Carry explains curve shapes: the fair forward price equals spot plus warehousing, interest, and insurance, minus the convenience yield of having stock on hand. When futures exceed that sum, cash and carry arbitrage buys physical, stores, sells futures, and locks the profit, which capped spreads in the aluminum warehouse financing deals that tied up Detroit stocks before rule reform. Scarcity inverts the curve when the convenience yield spikes. Interest rates run through carry as financing cost, so curve steepness moves with central bank cycles. Perishables such as milk and eggs have no carry, and their curves run on expectations alone.