Commodity Markets in Contango

If you’ve read an article lately about a commodity market being in Contango, and thought it related to Latin dancing, you wouldn’t be the first, and you certainly won’t be the last. While the term Contango doesn’t have anything to do with doing the Tango, it does have something to do with one of the more unique aspects of all futures markets called a “price curve.”

Unlike other investment markets, futures markets have fixed term contracts which expire at specific dates, and many different ‘contract months’ for each commodity futures market. For example, Managed Futures systems don’t just trade the crude oil market, they trade the May 2016 crude oil contract, or the December 2016 crude oil contract. A contract like December 2016, is described as a further out contract, and can have a price that is either higher of lower than the contract that’s closer to expiration. As we talked went into detail a while back, when the further out contracts “curve” downward, it’s referred to in the business as Backwardation, and when the further out contracts “curve upward” it’s referred to as Contango.

If the market is in Contango, the investors in ETFs following that market typically see underperformance from that market structure itself. This is because the ETF has to pay the roll yield, which means they have to sell the contract before it expires at the lower price and buy the further out contract at a higher price.

Here are the Contango/Backwardation curves of 9 Commodity Markets extending into 2017.

Markets in Contango

Crude Oil Contango

Gold Contango

Coffee Contango

Corn Contango

Wheat Contango

(Disclaimer: Past performance is not necessarily indicative of future results)

Markets in Backwardation

Emini Backwardation

10 Year Note Backwardation

(Disclaimer: Past performance is not necessarily indicative of future results)

Mixed

Lean Hogs Mixed

(Disclaimer: Past performance is not necessarily indicative of future results)

 

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.