Question 1. Contango and backwardation.

1. Go to the CME website, obtain a screenshot of the various futures contract prices for the following commodities, and determine whether each market is in contango, backwardation, or a mixture of contango and backwardation

(1) Corn

(2) Crude oil

(3) Live cattle

2. Use the concepts of cost-of-carry and convenience yield we discussed in the class, explain why contango is the normal market behavior, while backwardation is often considered as an abnormal market.

3. Explain why when the market is in contango the inventory of the commodity tends to be high, and when the market is in backwardation, the inventory of the commodity tends to be low.