Contango Report: Commodities Facing Uphill Curves

Contango is a natural phenomenon in the world of commodity futures. Some view it as an evil that plagues the space, but in reality it is just another pattern that traders can profit from. Contango, simply put, is the process by which futures contracts get more expensive as the maturity dates get further out from spot. While this can hurt a long-term position, savvy traders can use this uphill curve to their advantage. Below, we outline several commodities exhibiting contango to help you make the best trading decisions for your portfolio [for more commodity news and analysis subscribe to our free newsletter].

  • Precious Metals: As is typical, precious metals are among the worst offenders when it comes to contango. Gold is currently contangoed through December 2018, as far out as contracts are offered. Silver exhibits a similar pattern through July 2016, while both platinum and palladium are in contango through 2014. Note that the high storage costs for these precious assets is what often accounts for them sitting in steep contango.
  • Natural GasNatural Gas: NG has been a tough commodity to watch in recent years, as it faced a poor stretch after the 2008 recession; from there it has been quite volatile and difficult to predict. For now, its futures contracts face an uphill climb through January of 2014. Again, storing natural gas does not come cheap, often putting this commodity in the contango category [see also Understanding Contango: Natural Gas Example].
  • Wheat: After last year’s drought, which wreaked havoc on crop yields, traders have been anxiously awaiting this years’ growing season to see how a number of agricultural commodities will react. For the time being, wheat contracts are sitting in contango through May of 2015. While part of that is due to storage costs, it may also be due to market expectations of rising prices, especially considering the gravity of last year’s overall crop output.
  • Uranium: Except for a few months where prices dip by a few pennies, uranium is sitting in contango through February of 2018, as far out as contracts are currently offered. After the Fukushima disaster in Japan, nuclear energy got quite the bad rap around the investing world, causing uranium to take a hit. But as nuclear makes its way back from the bottom, it seems that the market is expecting uranium prices to do the very same.

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Disclosure: No positions at time of writing.

This entry was posted in Actionable Ideas, Agriculture, Asset Allocation, Commodity Futures, Energy, Gold, Natural Gas, Palladium, Platinum, Precious Metals, Silver, Trading, Wheat and tagged , , , , , , . Bookmark the permalink.

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