Identifier: C3T3L3 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

Reconcile commodity financing, storage and convenience yield. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can reconcile commodity financing, storage and convenience yield; compare contango and backwardation without forecasting spot; identify a physical mismatch that prevents cash-and-carry implementation.

Prerequisite: C3T3L2; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

A commodity holder pays financing, storage, insurance and sometimes transport, quality testing or shrinkage. Physical inventory can also provide a convenience benefit: it keeps production running when prompt supply is scarce. That benefit belongs to usable inventory, not automatically to a financial future. Futures can refer to a standardized grade, location, delivery period or cash index that differs from a business's inventory.

Price and return drivers

A teaching approximation is F = spot × (1 + financing × T) + storage and insurance − convenience benefit, all valued at expiry per physical unit. Contango means deferred price above the nearer price under a stated comparison; backwardation means below. Neither alone forecasts the eventual spot price. Convenience benefit is often inferred rather than a cash receipt.

Worked case

Hypothetical metal spot TRY 100/kg; six-month simple financing 30%; expiry-valued storage and insurance TRY 4/kg; inventory benefit TRY 3/kg. Model forward price = 100 × 1.15 + 4 − 3 = TRY 116/kg. For 1,000 kg this is TRY 116,000. Without the benefit it would be TRY 119/kg. Actual cash costs of owning inventory are TRY 15,000 financing plus TRY 4,000 storage, with TRY 3,000 imputed operating benefit. Keep that noncash benefit separate from spendable cash.

Adverse case

A supply disruption raises the imputed benefit to TRY 25/kg and storage to TRY 6/kg: model price becomes TRY 96/kg despite positive financing. A futures short against unsuitable-grade inventory still cannot deliver or realize the reference price. If a business pays TRY 8/kg to transport and upgrade 1,000 kg, an omitted TRY 8,000 expense can erase the apparent trade surplus. A futures loss may also precede the eventual inventory sale.

Practical use

Read domestic metal, precious-metal and energy specifications by physical unit, quotation currency and settlement index. The official product pages do not establish that a liquid contract matches your warehouse location or electricity consumption shape. Get executable storage, conversion, funding and trading terms. Include commission, collateral financing and tax; a cash-settled future does not pay storage invoices or replace physical procurement.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Use the model to identify which carry inputs need investigation. Do not treat a noncash convenience benefit as collateral funding. Reject a purported arbitrage if inventory cannot be stored, financed, insured, delivered or sold at the assumed reference. A financial cross-hedge may still reduce one driver but retains quality, location and timing risk.

Practice and references

Exercise: hypothetical spot TRY 200/unit, quarter-year financing 20%, storage TRY 5 and convenience benefit TRY 8 at expiry. Solution: 200 × 1.05 + 5 − 8 = TRY 207/unit; for 500 units TRY 103,500. Removing the benefit gives TRY 215/unit, a TRY 4,000 difference over the quantity, not cash profit automatically available.

Takeaway: Identify a physical mismatch that prevents cash-and-carry implementation using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: viop-future. Formula: Commodity simple carry. Glossary: Convenience yield, Contango, Backwardation. Next lesson: C3T3L4. Topic test.

Sources and verification date (2026-10-26):

Related product cards: viop-gold-future, viop-metal-future, viop-energy-future.

Shared reference guide