If storage costs for a commodity are greater than its convenience yield, the commodity’s forward curve is most likely: A. in backwardation. B. in contango. C. hump-shaped.
Futures price ≈ Spot price (1 + risk-free rate) + storage costs − convenience yield. If convenience yield is low and storage costs are high, it is likely that the futures price is greater than the spot price, or in contango.
