Reading the futures curve

Everything so far looked at one month through time. Turn the axes around: fix the moment, plot every month side by side. That picture is the curve, and commodities traders check it the way FX traders check the calendar.

The two shapes

Sloping upward - later months dearer - is contango, the resting state module 1's storage lesson predicts: carrying the good forward costs money, and the curve charges for it. Sloping downward - the nearest months dearest - is backwardation, and it is information. Someone needs the physical thing now badly enough to pay a premium over waiting, which storage arithmetic alone can never produce. Tightness now; adequacy later. The economics of what each shape pays or costs a position is module 8's opening act - this lesson is only about reading.

Watch the front of the curve

The far end drifts. The front end speaks. A steepening at the front - nearby months surging away from the rest - is the market repricing immediate scarcity, and it can happen inside a day on a supply shock. The 2020 collapse ran the film in reverse: the front fell away from the rest as storage filled, and the curve was screaming glut for weeks before the expiry that made headlines.

How to practise, without trading it

• Exchanges publish settlement prices per month, free, daily. Plot a curve for a product you follow; it takes minutes.
• Track the same curve across a week. The wriggle at the front against the stillness at the back is exactly the lesson-2 point, now visible in one picture.
• When a headline says a commodity 'rose', check what the curve did. A front-only rise and a whole-curve rise are different events wearing the same headline.

No indicator on a price chart summarises a commodity's physical state better than its curve. It is the highest-value free chart in this asset class, and almost nobody retail looks at it.