Why the inverse carry between may and july canola futures?

[bgmb]

Why is there a negative carry between may and july futures? I have seen a negative carry between old and new crop before but rarely between old crop months.

[charliep]

Actually not that uncommon in Canadian markets. Needs to have basis included but a signal that the market wants you to deliver now versus store. Also have to consider that grain companies realize road ban season is around the corner and from there seeding (period when deliveries seasonaly slow). July will also reflect new crop somewhat paricularly for canola (European/Chinese harvest winter canola harvest and expectations US farmers will increase soybean acres). Summer is also a period when domestic canola crushers shut down to do maintanence.

[classicalliberal]

There is a lot of export demand right now and since companies can't buy the cash canola that they need they are buying futures instead and allowing their futures contracts to expire to take delivery. It is the market's way to getting the product it needs now rather than continue to pay for the market to store it. Anyone who has hedged against the July or any further out futures month has more of an incentive to move the grain now because the spread has inverted which offers less carry in the market and thus a disincentive to store. When the market has a large amount of grain that it needs to ration througout the year, it will pay storage and interest like oats and canola have for the past two years until recently (canola).