Commodity traders and academic economists agree there is a close relationship between stock levels and the strip of futures prices. Holbrook Working of Stanford University’s Food Research Institute explained the relationship between stocks and the futures price curve over 80 years go (“Price relations between July and September wheat futures” 1933). In a market with ample inventories, the price of a commodity for future delivery tends to be above the price for immediate delivery, a condition known as contango. In a market with tight inventories, the reverse tends to be true, with price for immediate delivery trading above future prices, a condition known as backwardation. By extension, in a market characterized by excess supply, inventories will be rising, so the market will tend to move from backwardation into contango, or if it is already in contango […]