Commodity curve carry
CarryAdvanced
Commodity curve carry buys futures that are backwardated and shorts futures that are in contango. In backwardation the nearby contract is rich to the later one, so rolling can be a source of return if the curve is unchanged. In contango the roll works the other way. This is the term-structure rule, separate from ranking commodities on past price performance.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- Each month, for a fixed set of commodities, measure the slope between a nearby and a deferred contract, annualized. Rank on that slope. Go long the most backwardated and short the most contangoed, in equal weight or equal risk. Roll on a published schedule. Do not flip the rank because of a one-day quote in a deferred month.
- Where AI fits
- AI can compute curve slope from real contract months, handle missing defers, and keep this book separate from a momentum book so overlap is visible. It should simulate the roll you could actually trade. A language model that calls every rising commodity 'backwardated' has not looked at the curve.
- Markets
- Liquid commodity futures with more than one listed month.
- Timeframes
- Monthly rebalance.
- Risks
- Curves trend. A short in deep contango can be a short in a shortage that reprices the whole board. Deferred months are thin. Collateral and roll costs change the carry. Momentum strategies often pick the same contracts, so the risks stack.