Carry: when holding grain beats selling today

Every harvest ends with the same question. Do you sell into the rush, or hold and hope for a better price later? "Carry" is the financial answer to that question, and it is a calculation rather than a gut feel.

Carrying grain means storing it now to sell it later. It pays only when the price you expect to get later, after you subtract the cost of storing it, beats the price you can take today. Get that comparison right and holding is a deliberate trade. Get it wrong and you are paying to gamble.

What carry actually costs you

Storage is never free, even in your own silo. The real cost of carry has four parts.

• Storage. Shed depreciation and aeration, or paid warehousing fees if the grain leaves the farm.
• Interest and opportunity cost. Money tied up in unsold grain is money not paying down debt or earning somewhere else.
• Quality and shrink risk. Insects, moisture and downgrades can quietly erode value over months.
• Insurance. Covering the value of stored grain against fire and weather.

Add those up across the months you intend to hold and you have your cost of carry per tonne.

Let the forward curve tell you what the market thinks

You do not have to guess the future price blind. The futures forward curve shows what buyers are already willing to pay for delivery in later months.

When deferred months trade higher than the nearby month, in a market traders call "contango", the market is effectively paying you to store grain. There is a positive carry on offer. When the nearby month trades higher than deferred, in a "backwardated" market, the market is telling you it wants grain now, and holding means fighting the tape.

A market that pays you to carry will show it in the forward curve. A market that doesn't is telling you to sell.

A worked example

Say you are holding 200 tonnes of canola. You can sell today, or hold three weeks for a spread you believe is worth about $31 a tonne. Your carry cost over those three weeks, counting storage, interest and a small shrink allowance, works out to roughly $9 a tonne.

The uplift comfortably clears the cost, so carry looks worth it here. But the margin between the two numbers is also your buffer. If basis weakens or the spread closes, a thin gap turns a hold into a loss.

So, hold or sell?

Sell today unless the expected later price, after you take off your full cost of carry and a margin for being wrong, still beats today's bid. When it does, holding is a strategy. When it doesn't, holding is just hope with a storage bill attached.