We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Economy

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Convenience Yield?

Malcolm Tatum
By
Updated: May 16, 2024
Views: 17,000
Share

The convenience yield associated with a given good has to do with the degree of benefit or premium that is derived from directly owning that particular good. The convenience yield does not address the benefits or advantages of holding a contract on the goods, or some sort of derivative product related to the good. From this perspective, this means that a convenience yield is based on actual possession, and not on owning a futures contract or some other arrangement.

Owning a good may or may not actually present the most advantageous situation for an investor. However, there are certainly situations that may occur where direct ownership provides a level of benefit that could not be derived from having an option of some sort. This can be especially true when it comes to commodities.

Owning goods such as basic food products can lead to a substantial convenience yield under certain circumstances. For example, owning actual bales of wheat or storehouses of corn could become highly profitable, in the event that a drought or some other natural disaster destroyed huge amounts of the commodity. This type of situation often leads to an increase in demand that drives up the prices that consumers are willing to pay for the limited commodity. When an investor owns actual product that can now be sold at market, there is an opportunity to realize a substantial return on the investment.

Calculating the convenience yield on a given product involves careful consideration of current market conditions. This will set the stage for choosing to make an investment in the commodity. At the same time, a number of factors will be addressed in the task of projecting future performance. If there are some indications that political or natural situations will lead to high demand with little supply within a reasonable time frame, direct ownership rather than futures options may be the right choice. When this proves to be the case, the investor will enjoy a high level of convenience yield on the initial investment and any expenses incurred to take possession and store the goods until the resale takes place.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Related Articles

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.smartcapitalmind.com/what-is-a-convenience-yield.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.