right that is definitely a possibility. I would agree that for spot prices the long term expected real return is zero. One could even make an argument i suppose that for spot prices the expected real return is negative due to technological improvements etc (easier to grow corn, etc.)jalbert wrote: ↑Wed Mar 21, 2018 1:38 pmOr they fall further than projected. On average, I think it will balance out, and the long term expected real return of commodities is zero.Intuitively though that fits with my mental model of when i want to invest in commodity futures. i.e. when Commodity producers (think corn farmers) are worried about falling prices, the curve is in backwardation, they are willing to pay up for price insurance for the coming harvest and i am selling it to them. and then as events play out corn prices "do" fall but not as much as was feared and i make money off the roll.
the question is whether the commodity futures curve being in backwardation is a reliable signal that there are "risk premia" to be had in the commodities futures market. I don't know the answer. I certainly wouldn't bet more than 5% of my risk portfolio on such a bet. Vanguard for example has a 5% allocation in the Vanguard managed payout fund to commodity futures. that level seems to me like it could be appropriate. But i personally wouldn't make that bet now with commodities broadly in contango.