Contango Charts

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A commodity is said to be in Contango if 'forward' contracts are priced higher than the 'front month'. The front month is the contract that is nearest to expiration; 'foward' contracts are futures with expiration dates after the expiration date of the front month. If forward contracts ar price lower than the front month, the commodity is said to be in backwardation.

Other things being equal, the existence of a contango indicates that futures participants expect the price of the commodity to rise (since they are prepared to pay more to obtain delivery of the commodity in question, the further into the future). If a commodity is in backwardation it indicates that the market expects the price to fall.

If the slope of the contango or backwardation becomes very strong, it indicates that participants expect the market to rise (or fall) forcefully: taken in conjunction with Commitment of Traders analysis, this may indicate a situation of a 'sentiment extreme' and the optimal trade is to take the opposite side of the trade.