Answer: Storage costs of agricultural commodities cause futures prices to display a mixture of normal and inverted pricing patterns.

## Explanation Let's analyze each option: **Option A**: Incorrect. While storage costs do influence commodity futures prices, they are not the "main factor" for long-term industrial metals contracts. Industrial metals typically have lower storage costs relative to their value, and other factors like industrial demand, global economic conditions, and production costs play more significant roles. **Option B**: Incorrect. Lease rates on commodities are not typically equal to the risk-free rate. Lease rates are determined by supply and demand for borrowing the physical commodity and can vary significantly from risk-free rates. They can also be negative in certain market conditions. **Option C**: **CORRECT**. Storage costs of agricultural commodities do cause futures prices to display mixed patterns: - **Normal backwardation** (downward sloping curve) occurs when storage costs are high relative to convenience yields - **Contango** (upward sloping curve) occurs when convenience yields exceed storage costs - Agricultural commodities often exhibit seasonal patterns where the curve shifts between these states **Option D**: Incorrect. Convenience yield is not a charge subtracted from the lease rate. Convenience yield represents the benefit or premium that holders of physical commodities receive from having immediate access to the commodity, which can be used in production or to meet unexpected demand. It's actually added to the cost of carry model, not subtracted. The correct answer is C because storage costs directly impact the term structure of commodity futures prices, particularly for agricultural commodities where storage considerations are significant due to seasonal production patterns and perishability.

Author: LeetQuiz .