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Selling the carry

The concept of “carry” refers to a market in which future months are worth more than the current month.

I’m relatively new to farming, and I’ve heard people talk about “selling the carry” in the market. But I’m not sure what that means. Would you please explain? — J.S., Illinois

A strong understanding of “selling the carry” can be a great tool in terms of adding value to your crop. I’ll explain just the basics of it here.

Essentially, when you look at the Chicago Board of Trade, you’ll find that the prices for December, March and July corn are all different.

The same is true when you ask the elevator what it’s bidding for corn for December, March or July delivery. All of its bids will include basis, as well, so it’s going to have different cash prices.

The concept of “carry” refers to a market in which future months are worth more than the current month.

Selling the carry means looking at how the farmer can take advantage of that. In a “carry market,” the market is trying to incentivize farmers and the marketplace to store grain. It means the market is basically willing to pay farmers to store grain.

The key point here though, which often gets missed, is that in order to capture the carry, you have to sell the carry.

As an example, let’s say that in March, they’re bidding $3.80 per bushel for corn, and in July, they’re bidding $3.95 per bushel.

At that point, in order to get the 15 cents per bushel that the market is willing to pay you, you have to actually sell it in July. To make that money, you have to hold the grain in your bin and deliver it in July.

To capture the carry, you have to sell the carry that the market is offering you. In markets where we don’t have excess supply, there may not be much carry to sell. But in markets where we do have an abundance of supply, there may be more of an advantage to selling out into the future — or “selling the carry.”

As a farmer, understanding carry and how to use it as a part of your marketing plan can be a useful tool in your grain merchandising toolbox.

Frye is president and CEO of Water Street Solutions. Read his blog, Finance First, online and in the pages of Farm Futures. waterstreet@waterstreetconsulting.com

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