HardAssetsInvestor

Written by Sumit Roy  |

July 02, 2012

Contango Report: Roll Costs For Spiking Corn Are Minimal, Brent Returns to Backwardation

Details

At current levels, roll costs aren't a major consideration for corn investors.

Featured Commodity

CONTANGO WATCH: The front-month to second-month backwardation in corn prices remained at steep levels last week, as frantic buying spurred a furious rally in the grain. As we wrote last week, ongoing hot, dry weather in the U.S. Midwest is damaging the corn and soybeans crops, leading analysts to downgrade their forecasts for supply.

But the July corn contract will fall off the board within weeks. For investors seeking longer-term corn exposure, beyond the harvest, the second- to third-month roll may be more representative. Currently, it costs investors 2.8 percent annualized to roll from the second to the third month. Still, that's a relatively minor cost relative to the 25 percent-plus rally in corn prices over the past month.

ROLL COSTS: It costs investors 2.8 percent annualized to roll second-month corn contracts.

BOTTOM LINE: Steep Backwardation to Contango

Each week, we investigate the futures curves of the most important commodities in the U.S., helping investors better understand the market and seize buy-and-sell opportunities as soon as they arise. For an easy-to-understand explanation of contango, backwardation and roll yields, please click here to go to our Hard Assets University.

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 as of close on June 29, 2012
Data courtesy IndexUniverse.com