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Abstract
Cash and futures prices should reach equality, or converge, upon contract maturity. Traders can impose convergence during the delivery month through
arbitrage behavior: either making or taking delivery on futures contracts. If convergence is not predictable, a futures market fails to provide a clear storage signal to potential inventory holders and reduces the attractiveness of hedging. Recent convergence problems in domestic commodity markets demonstrate the existence of persistent, significant arbitrage opportunities over the second half
of the last decade. Yet, terminal elevator operators—perhaps the only participants with the capacity to do so—have not arbitraged away these riskless returns by making
enough deliveries. This model demonstrates conditions under which a profit maximizing warehouseman foregoes available arbitrage. We find that making delivery involves substantial opportunity costs, which stem from the loss of managerial control over warehouse space. We refer to the inconvenience of losing such control as the inconvenience cost.