Contango Report: Is Corn's Backwardation Ending?

Includes: CORN
by: Hard Assets Investor

By S.M. Brorup

Corn closely resembles 2011 figures and looks to be heading for a correction.

Featured Commodity

Click to enlarge
(Click to enlarge)

CONTANGO WATCH: Corn’s trend of uncharacteristically steep backwardation may be turning the corner, as its current cost narrowed by almost 3 percent this week. Prices have remained relatively steady for the week, with only a minor 0.88 percent return.

While a seasonally deeper trough of backwardation is expected, this week’s one-year roll cost chart and figures are markedly dissimilar from 2012 (when investors saw a net of only 1.90 percent) and much more resembles our chart from 7/05/2011:

Click to enlarge
(Click to enlarge)

Prices have fallen in all but the expiring July contract, despite the historic drought causing tight supplies since last fall. Dow Jones also reported that while there has been strong demand from ethanol producers, foreign supplies have undercut U.S. corn prices.

Based on the figures from the last five years on this date that comprise our five-year average historical roll cost, investors should expect a correction in corn heading into contango as the month advances.

ROLL COSTS: Investors net 22.39 percent annualized to roll front-month corn contracts, down from a net of 25.31 percent.

BOTTOM LINE: Steep Backwardation

Data as of close on July 8, 2013

Data courtesy