Contango occurs when the futures market is priced higher than the spot market. When this scenario arises the futures price decrease to the spot price at time of delivery. This differential can be described as the carry risk, or the cost for holding the asset into the future delivery date.

For example, if December 2010 corn futures are trading at $3.75 per bushel, and the spot price is $3.25 per bushel, and corn is expected to rise only slightly to $3.50 by December, this market would be considered in contango. The difference between December futures and spot price equals carry risk.

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