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

AGORA MEETS BERTRAND BADIE, POLITICAL SCIENTIST AND INTERNATIONAL RELATIONS SPECIALIST
News
- 21-10-2021
Agora students held another 'Rencontre de l'Agora' event on Wednesday 19 October, this...
Eiffel Excellence Scholarship: the most prestigious French scholarship you can get
News
- 21-10-2021
Mikhail Miroshnichenko joined EDHEC MiM Finance after his Bachelor’s degree in...
EDHEC-Auchan Learning Partnership: Retail industry transformations at the heart of EDHEC International BBA learning
News
- 20-10-2021
Auchan is joining forces with EDHEC to share its retail industry expertise with EDHEC...
The FIR-PRI Awards “Finance & Sustainability” prize for “best pedagogical innovation”: preparing future generations to fight climate change.
News
- 18-10-2021
At EDHEC, we want to take part in the fight against climate change. Through our...