Explanation

Commodity futures backwardation occurs when the futures price is below the spot price. This typically happens when:

1. Convenience yield is high - The convenience yield represents the benefit of holding the physical commodity rather than the futures contract. When this yield is high, market participants are willing to pay a premium for immediate access to the commodity, which drives up spot prices relative to futures prices.

2. Storage costs are low - High storage costs would typically lead to contango (futures price > spot price) because futures prices need to compensate for storage costs.

3. Interest rates are low - High interest rates would typically lead to contango because futures prices need to compensate for the cost of financing.

Key Relationships:

• Futures price ≈ Spot price + Storage costs - Convenience yield + Interest costs
• When convenience yield > (storage costs + interest costs), backwardation occurs
• High convenience yield is the primary driver of backwardation in commodity markets

Real-world examples:

• Agricultural commodities during harvest season
• Energy commodities during supply disruptions
• Industrial metals during periods of high demand

Therefore, option C is correct because a high convenience yield is the most direct cause of commodity futures backwardation.