We also discussed that the spread (difference) between two futures prices for a storable commodity should be given by the cost of carry between the two delivery months. Let us think about the spread between the corn futures prices for March delivery and May delivery, i. e. a 2-month difference in delivery time. Now assume the cost of carry is $0.025/bu/month, and the futures prices are $3.74/bu for March delivery and $3.82/bu for May delivery. Can we have this spread between the two futures prices given the cost of carry of $0.025/bu? Why? Explain in detail, step-by-step, what will happen with the two futures prices and the difference between them.
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We also discussed that the spread (difference) between two futures prices for a storable commodity s...
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