Backwardation in 2025: What Aussie Investors Should Know

Backwardation is a market condition where the current (spot) price of a commodity is higher than the price for futures contracts expiring further out. In other words, buying oil, wheat, or gold today costs more than locking in a price for delivery months down the track. This is the opposite of contango, where future prices are higher than spot prices.

Here’s why backwardation matters in 2025:

• Signals supply tightness: Backwardation often emerges when there’s a near-term shortage or unexpected demand spike for a commodity.

• Impacts returns: Investors rolling futures contracts in a backwardated market can potentially profit as they sell expiring contracts at higher prices and buy cheaper longer-dated contracts.

• Reflects market sentiment: Persistent backwardation can indicate underlying economic trends, from geopolitical disruptions to climate-driven supply shocks.

In 2025, several commodities popular with Australian investors have experienced backwardation. Let’s look at two real-world scenarios:

• Global Oil Markets: With ongoing supply chain disruptions and OPEC+ production cuts, Brent crude has seen spot prices surge above later futures contracts. For example, in April 2025, the spot price hit US$92/barrel, while the six-month futures contract lagged at US$88/barrel. This created profitable conditions for funds using a roll strategy.

• Australian Wheat: After erratic weather reduced crop yields in the eastern states, domestic wheat spot prices soared. The July 2025 spot contract traded at a 4% premium to December futures, prompting agri-ETFs and producers to adjust their hedging tactics accordingly.

Investors holding commodity ETFs or managed funds may notice these effects in their returns, as fund managers roll contracts to take advantage of the backwardated curve.

So how can Australians use backwardation to their advantage—or at least avoid common pitfalls?

• ETF and Managed Fund Investors: Check if your fund benefits from backwardation. Funds that roll contracts monthly can see enhanced returns in backwardated markets, as they consistently buy low and sell high.

• Direct Commodity Traders: If you’re trading futures directly on the ASX or via international platforms, watch the forward curve. Backwardation can signal a short-term opportunity, but it also points to potential supply risks.

• Superannuation Funds: Large super funds with commodity exposure may see increased volatility in their portfolios, particularly if backwardation persists in energy or agricultural markets. Stay up to date with fund communications and market reports.

With the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) releasing updated guidance in early 2025 on risk disclosure for commodity-based products, transparency around futures roll strategies is improving. This makes it easier for retail investors to assess how backwardation could impact their returns.

Two key developments are shaping the backwardation landscape for Australian investors this year:

• New APRA Reporting Standards: From March 2025, managed funds must provide detailed breakdowns of their exposure to commodity futures and the impact of curve structure (backwardation/contango) on performance.

• ASX Futures Market Innovations: The ASX has introduced enhanced curve analytics tools, enabling traders to visualise backwardation and contango across different maturities for energy, metals, and ag products.

This means investors and advisers have more data than ever to make informed decisions, spot opportunities, and manage risks tied to market structure shifts.

Backwardation is more than a technical quirk—it’s a reflection of real-world supply and demand, market psychology, and economic policy. In 2025’s fast-moving financial landscape, understanding backwardation can give Australian investors an edge, whether you’re trading futures, investing in ETFs, or managing a self-managed super fund. Track the curve, know your products, and stay informed to make the most of these market signals.