What’s changing? I have mentioned that low inventories are causing mean reversion that is likely to drive swings between winners and losers. These swings also show up in flipping term structures. Over the summer through October the number of commodities that remained in backwardation dropped from 12 down to 4. Only WTI, Unleaded Gasoline, Copper and Feeder Cattle remained in backwardation. Today, WTI Crude Oil and Unleaded Gasoline have succumbed to the supply glut of oil so these commodities have lost their backwardated positions and are now in contango.
However, now, in December, the number of commodities that are in backwardation is TEN with six newly flipped commodities! This group includes Feeder Cattle, Heating Oil, Copper, Corn, Cocoa, Silver, Kansas Wheat, Lean Hogs, Coffee and Live Cattle. News of hoarding from Vietnam of coffee, Russia with wheat and an export tax from India on sugar are supply issues that may be supporting this term structure.
This article was written by Jodie Gunzberg, global head of commodities, S&P Down Jones Indices.
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