The current spot price of corn is $3.64 per bushel. CME futures contracts are 5,000 bushels each. The risk-free rate is 0.8%. The December contract (T=10 months) is currently $4.00. Storage costs are $0.32 per bushel for 10 months (paid at the end of the 10 months). What is the theoretical futures price? If the futures price is $4.75, is there an arbitrage trade? What about $3.25?

Reference: Lecture notes

Storage costs can be viewed as negative income: F0 <= S0 e^((r+u)T) where u is the storage cost per unit time as a percent of the asset value. Alternatively, F0 = (S0+U)e^(rT) where U is the present value of the storage costs.