Agriculture & livestock
What is Contango in agricultural markets and how does physical grain elevator storage cost enforce it?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Contango occurs when deferred futures months trade above nearby months, reflecting the cost of physically storing grain (elevator fees, insurance, interest), which creates a predictable upward-sloping forward curve absent supply disruption.
How it works
Storage costs must be compensated by a price premium for holding grain longer, so in adequate-supply conditions the futures curve naturally slopes upward to cover carrying costs.
An example
After a large harvest with ample storage capacity, corn futures often show contango, with December futures priced higher than the September contract to cover storage costs.
Risk & limitations
Contango can erode returns for long-only commodity index funds that must roll contracts forward at a loss each cycle, known as negative roll yield.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.