The Contango Report: WTI Roll Costs Hit 2011 Lows

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 |  Includes: ALUM, BAL, BDG, CAFE, GLD, OIL, PALL, SLV, SOYB, UNG
by: Hard Assets Investor

By Sumit Roy

Has oil moved into backwardation yet? What does corn’s roll yield look like? How do you know when it’s time to buy—or sell?

Each week, we investigate the futures curves of the U.S.’ most important commodities, helping investors better understand the market and seize buy-and-sell opportunities as soon as they arise.

To see current contango curve and front-month roll costs for each of our selected commodities, please select a sector or commodity below (or read the whole report):


Data from March 21 to March 25, 2011
Data courtesy IndexUniverse.com

Energy

Agricultural Commodities

Precious Metals

Soft Commodities

Industrial Metals

Click to enlarge
Commodity Roll Costs

Click to enlarge

Energy

NYMEX WTI Crude Oil


WTICrudeClick to enlarge

CONTANGO WATCH: The one-year WTI crude oil forward curve flattened even further this past week, but it remains in steady contango through the end of this year.

ROLL COSTS:
At 4.76 percent, front-month annualized roll costs have fallen to their lowest levels since late last year.

BOTTOM LINE: Contango to Backwardation


ICE Brent Crude Oil


Brent CrudeClick to enlarge

CONTANGO WATCH: Although the Brent forward curve steepened slightly, it remains in steady backwardation.

ROLL COSTS: Investors net slightly more than last week on the front-month Brent roll.

BOTTOM LINE: Backwardation

NYMEX Henry Hub Natural Gas


H H Nymex natural GasClick to enlarge

CONTANGO WATCH: Natural gas prices continued to rally last week, but the shape of the forward curve was largely unchanged.

ROLL COSTS: Annualized roll costs fell almost 100 basis points to 24.7 percent. While these costs may seem high, as we’ve said before, they are actually quite modest, historically.

BOTTOM LINE: Contango

Precious Metals

COMEX Gold


Comex GoldClick to enlarge

CONTANGO WATCH:
The gold forward curve flattened a bit on the front end, but remains in mild contango.

ROLL COSTS: Annualized front-month roll costs dipped to 1.1 percent from 1.45 percent.

BOTTOM LINE: Mild Contango

COMEX Silver


Comex SilverClick to enlarge

CONTANGO WATCH: The silver forward curve reversed last week’s steepening, with the very front end switching to a far more modest contango.

ROLL COSTS: Annualized roll costs fell back to a more tenable 0.65 percent from last week’s 3.74 percent.

BOTTOM LINE: Choppy Contango

NYMEX Platinum


Nymex PlatinumClick to enlarge

CONTANGO WATCH: The platinum forward curve remains in steady contango for the next year.

ROLL COSTS: Investors’ cost to roll front-month platinum contracts fell to 1.87 percent annualized, down from 2.54 percent.

BOTTOM LINE: Mild Contango

NYMEX Palladium


Nymex PalladiumClick to enlarge

CONTANGO WATCH: The backwardation on the very front end of the palladium forward curve steepened a bit, but overall, the shape of the curve remains unchanged.

ROLL COSTS: Investors gain a bit more from rolling front-month palladium contracts this week—0.8 percent vs. 0.33 percent in the prior period.

BOTTOM LINE: Mild Backwardation to Mild Contango

Industrial Metals

LME Copper


LME CopperClick to enlarge

CONTANGO WATCH: The copper forward curve returned to steady contango through the rest of this year. However, the curve starts to flatten and move into backwardation in the back end, when the market is expected to tighten.

ROLL COSTS: Front month roll costs increased to 0.5 percent from 0.28 percent last week.

BOTTOM LINE: Contango to Backwardation

LME Aluminum


LME AluminumClick to enlarge

CONTANGO WATCH: The aluminum forward curve remains in steady and consistent contango.

ROLL COSTS: Front-month roll costs have remained remarkably stable for the last several weeks.

BOTTOM LINE: Steady Contango

LME Zinc


LMEZincClick to enlarge

CONTANGO WATCH: Like aluminum, zinc remains in steady contango through the entire forward curve.

ROLL COSTS: Zinc roll costs more than halved to 1.25 percent from 2.61 percent last week.

BOTTOM LINE: Steady Contango

LME Lead


LMELeadClick to enlarge

CONTANGO WATCH: The lead forward curve, which remains in backwardation, steepened notably from last week.

ROLL COSTS: Investors net over 8 percent annualized from rolling front-month zinc contracts, almost double last week’s yield.

BOTTOM LINE: Backwardation

LME Nickel


LME NickelClick to enlarge

CONTANGO WATCH: The nickel forward curve remains virtually flat before shifting to steady backwardation after August.

ROLL COSTS: Investors pay a very slight 0.13 percent annualized cost to roll front-month nickel, modest by any measure.

BOTTOM LINE: Flat to Backwardation

LME Tin


LMETinClick to enlarge

CONTANGO WATCH: The very front end of the tin forward curve moved into slight contango, but for all intents and purposes, tin is in backwardation.

ROLL COSTS: Investors pay 0.08 percent annualized to roll the front-month tin contract.

BOTTOM LINE: Flat to Backwardation

Agricultural Commodities

CBOT Corn


CBOT CornClick to enlarge

CONTANGO WATCH: Corn’s forward curve features contango at the very front end, backwardation in the middle and then contango once again.

ROLL COSTS: Corn’s roll costs fell about 100 basis points last week after doubling the week before.

BOTTOM LINE: Contango to Backwardation


CBOT Wheat


CBOT WheatClick to enlarge

CONTANGO WATCH: The wheat forward curve remains in its steepened state.

ROLL COSTS: Wheat’s annualized front-month roll costs were expensive but steady in the latest week at 76.36 percent.

BOTTOM LINE: Steep Contango

CBOT Soybeans


CBOT SoybeansClick to enlarge

CONTANGO WATCH: Soybeans remain in contango through July, before they move into backwardation.

ROLL COSTS: The soybean roll increased to 9.44 percent from 8.22 percent.

BOTTOM LINE: Contango to Backwardation

CME Live Cattle


CME Live CattleClick to enlarge

CONTANGO WATCH: The very front of the live cattle curve has moved into backwardation.

ROLL COSTS: Investors now net a hefty 6.16 percent annualized to roll front-month live cattle contracts, much better than last week when investors had to pay 1.62 percent.

BOTTOM LINE: Humpbacked Contango

CME Lean Hogs


CMELean HogsClick to enlarge

CONTANGO WATCH: Lean Hogs remains in steep seasonal contango, but as expected, the curve is starting to flatten.

ROLL COSTS: The annualized roll cost fell to 187.5 percent from 263.32 percent last week.

BOTTOM LINE: Humpbacked Contango

Soft Commodities

ICE Coffee


ICE CoffeeClick to enlarge

CONTANGO WATCH: The coffee curve is back in steady contango for the next few contract months.

ROLL COSTS: Annualized front-month roll costs for coffee rose significantly to 11.51 percent as the March contract fell off the board.

BOTTOM LINE: Contango

ICE Cocoa


ICE CocoaClick to enlarge

CONTANGO WATCH: The cocoa forward curve is virtually flat for the rest of this year.

ROLL COSTS: Investors pay 0.74 percent to roll front-month cocoa contracts, down from 1.55 percent last week.

BOTTOM LINE: Flat to Contango

ICE Sugar #11


ICE SugarClick to enlarge

CONTANGO WATCH: The sugar forward curve continues to exhibit extremely steep backwardation. The shape of the forward curve has been unchanged for several weeks now.

ROLL COSTS: Investors continue to net a very attractive 63 percent positive roll yield from holding sugar contracts, the same as last week.

BOTTOM LINE: Steep Backwardation

ICE Cotton #2


ICE CottonClick to enlarge

CONTANGO WATCH: The cotton forward curve lost some of its steepness in the past week, as prices suffered.

ROLL COSTS: The cotton annualized roll yield fell to 35.67 percent, but it remains high by any measure.

BOTTOM LINE: Steep Backwardation