Backwardation and Commodity Futures Performance: Evidence from Evolving Agricultural Markets

Barry Feldman, Hilary Till: The recent performance of commodities has spurred interest in the various sources of returns to commodity investment.

Author(s):

Barry Feldman

Senior Research Analyst, Russell Investment Group

Hilary Till

Research Associate, EDHEC-Risk InstituteCo-founder of Premia Capital Management, LLC

The underlying sources of return include the potential return due to backwardation. The extent of backwardation existing in various commodities depends both on the actual commodity examined and the changing characteristics of that particular commodity market. In this paper, we examine the role of backwardation in the performance of passive long positions in soybeans, corn, and wheat futures over the period, 1950 to 2004. We find that over this period, backwardation has been highly predictive of the return of a passive long futures position when measured over long investment horizons. We focus on the backwardation for a particular commodity; that is, soybeans. A historical examination of soybean production and trading suggests that the profitability of a passive long soybean position during the early part of our sample may have resulted from inadequate inventories and storage facilities at the time. The implications of changing demand-and-supply characteristics on future commodity backwardation and on commodity investing are considered.

Type: Working paper
Date: le 06/11/2006
Research Cluster : Finance

See Also

How I got my dream internships
News
- 02-06-2020
I originally wanted to be a footballer. I daydreamed about training with the top...
« EDHEC, the best experience of my life so far »
News
- 29-05-2020
WHAT IS YOUR EDUCATIONAL BACKGROUND PRIOR TO EDHEC? Prior to EDHEC, I pursued a...
Meet Valentin Grinner, Pre-Master student
News
- 28-05-2020
Valentin Grinner “I’ve started a MOOC to learn web development” Valentin, 20, is...
EDHEC EXECUTIVE EDUCATION SPOTLIGHT WEBINARS
News
- 28-05-2020
In the current climate of uncertainty and complexity, as manager and leaders we are all...