Deepest Backwardation Since ‘07 Shows World Short on Commodities

For an idea of exactly how strong the fundamentals are for commodities such as metals, agriculture and oil today, consider this: These markets are now showing the steepest backwardation in more than 14 years.

That is, the premium for commodities that can be delivered now versus later into the future is the highest it has been since at least 2007, signaling just how strong the world’s demand is for raw materials and how tight supplies are.

Deepest Backwardation Since ‘07 Shows World Short on Commodities

In commodities markets, futures are frequently pricier at longer maturities because they reflect the cost of carrying inventories over time as well as future demand expectations. But urgent demand has flipped about half of major commodity markets tracked by the Bloomberg Commodity Index including oil, natural gas, copper, soybeans into backwardation.

Pimco Says Commodity Rally Reveals Shortages of Vital Materials

Prices for everything from copper to oil have sky-rocketed as the largest economies rebound from the pandemic amid massive government stimulus spending. Manufacturing and building are picking up, and more people are driving their cars and booking airline tickets as they get vaccinated. China is buying record amounts of corn, and agricultural grains have gotten so expensive it’s upending global trade flows.

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