View Full Version : Temporary structure of wood futures
Is there anyone interested in the timber market? I am not interested in the spot price, but the temporary structure of its futures. It is currently in contango, and it has also been in the last two years, even at high prices. However, 3 or 4 years ago it was in a marked backwardation. It is rare, because being a “normal” raw material, it should have a regular structure: either always in contango or always in backwardation. I am looking for a raw material with a stable structure in time, either contango or backwardation, but constant. Can anyone explain this? Did anything change in the commercial mechanism of physical wood (and therefore in the futures)
pillwmkas
05-07-2025 16:11,
Gold and silver are almost always in contango. Why do you think that wood should always be kept in contango or backwardation and not change? It is a raw material like any other, with supply and demand fundamentals that vary. Forest fires can reduce supply temporarily, generating higher prices. If the real estate market falls, fewer houses and more wood are built, lower prices.
Thank you for suggesting gold and silver. Do you know any other? About wood (and other raw materials)
Piliyinghima
05-07-2025 16:21,
Sabbb, forget it. You will not find a raw material with a stable temporal structure, that is, always in contango or always in backwardation. That happens because the structure depends on many factors that change: expectations, climate, politics, future demand, etc. The stability you seek is more a theoretical ideal than something real. I think I understand what you want to do: you are probably looking for a constant structure to operate spreads of futures and capture the performance of the contango or backwardation. Good strategy, but the problem is that there is no guarantee that that that structure will stay stable in time. Crude, gold, silver... all have moments of change.
Thanks for your answer. Backwardation or contango have their raison d'être and depend on the physical product, their market and also on the supply and demand. I want to understand the instrument beyond whether it gives me profit or not. Generally the raw materials are in contango because the product already exists and the sellers demand more to deliver later, which is logical. No one in their right mind sells cheaper to the future. Backwardation should occur only in moments of immediate extreme demand, such as natural gas in cold winters, and for a short time. If that mechanism does not work, there is some specific feature in that market. But no one seems to be able to explain it.
And about that “probably you want to capture the yield of the contango by spreadings”, I don’t understand it at all. Even if I find a raw material in constant contango, I don’t see the gain in making a spread (buy the future further away and sell the nearby
salvagokli
05-07-2025 16:38,
Sabbb, if there is a potential gain in contango/backwardation spreads. For example, in a contango structure, the spread between F1 and F2 tends to expand, then you sell F1 and buy F2. If the contango is maintained or expanded, the spread gives you net gain, because you gain more in F1 than you lose in F2. You said you prefer to short directly, but that is a directional position. The spread is more neutral: you don’t care if the price goes up or lower, but how the curve evolves between maturities. Backwardation is the opposite: you buy the first month and sell the second. On the grid trading, I don’t know much. Can you explain?
Yes, sometimes it works, but sometimes it doesn't. And about the grid, it's not my idea, you can look for it. Basically, it consists of buying every X pips when the price goes down, and selling every position when you reach a certain profit. The good thing is that it doesn't need indicators or oscillators. But it has two big problems: you need a lot of capital to endure opposing tendencies, and to get out of all the winning positions is slow. It would be useful if you found an instrument that moves in a narrow range. That's why I thought of combining it with stops, but I still didn't find anything convincing.
CamlllCC14
05-07-2025 16:48,
Sabbb, and Narfa: I operate some VIX products (ETFs, options, futures
muizeneko
05-07-2025 16:51,
Rhoads proposes in his book a simple strategy with calendar spreads of the VIX. It consists of selling the nearest future with 3-4 months and buying the next one. It closes the position on the Friday before the expiration. It is like selling a volatility insurance. The second position acts as cover. It is profitable in the long term, but not spectacular. He proposes a filter: if the future premium is negative, it avoids entering. This improves the risk, although not necessarily the total return.
I don’t understand what you mean by “no gain with spreads.” Of course, there is if the curve moves in your favor. If you’re short in F1 and long in F2, and the contango increases, you win.
Operating VIX spreads is a complex issue, but there are many interesting opportunities there. I recommend looking for Zebrasquirl's contributions, has strategies based on time structure that are good.
They told me in the psych ward that I was fine, so I can handle some volatility. If there is nuclear war in Asia, I better have a long vol running. My accounts could survive better than me.
I leave some resources: http://vixcentral.com http://sixfigureinvesting.com Useful info on contango, roll and spreads. Highly recommended.
Yes, that VIX in constant contango I already knew. You can go short (even with CFD to not tie so much capital
Look, while the contango in the VIX may seem constant, it’s actually misleading. When the volatility rises sharply, the curve is reversed in a matter of hours. And there, if you’re positioned with spreads, you don’t have room to “set” anything, you’re already eating the loss. That’s why I asked if there’s really a practical way out on time.
I appreciate the links you shared, I am already reviewing them. Very good material, especially that of SixFigureInvesting. What I would like to understand better is whether there is an objective way to measure the stability of a curve over time, without having to evaluate it by eye.
I'm also considering a mixed strategy, some kind of grid with curve structure, but limited with stops to reduce risk. I didn't find many real experiences about this, just vague theories. If anyone has done anything like that, I'd appreciate it.
To those who operate the VIX, how do they handle the rollover in contracts? Because the exposure changes a lot between F1 and F2, and that can alter any spread strategy. Do they use automatic calendar, do they do manual adjustment or directly longer positioning?
With regard to oil, I was surprised that they said that it was in contango since 2014. I have records where it was invested in several stages of 2022. Are you sure of that or is it just a generalization to simplify the explanation?
I still don't find a raw material with a truly stable structure. And that which I checked agricultural commodities, metals, energy... The closest thing is the VIX, but even there, in times of panic, the curve turns like a hot pan tortilla.
What I do not finish understanding is how you can operate a spread if the width of the curve changes constantly. Maybe I need another perspective, but so far it seems too dependent on unpredictable factors.
What frustrates me a little bit is that many talk about operating futures as if it were simple. But in practice, between the margin, the required capital and the adjustments, it becomes everything more technical and less intuitive.
On raw oil spreads, has anyone tried to automate the strategy with a Tradestation or Multicharts platform? Because I'm very interested in backtesting, but I don't find a reliable, historical full curve feed.
Thank you for the kind and technical comments. This thread is helping me quite well to clarify ideas. My ultimate goal is not to win in the short term, but to understand the logic of differential prices and build something scalable.
I'm also looking at the hidden costs of operating these spreads. Sliding, commissions, the cost per rollover... all adds up. In the end, theoretical performance can be crushed by operational friction.
The grid trading with stop is still an unknown to me. I did not find any real example that works beyond backtests in ideal markets. If anyone has a serious variant of that, without being pure martingala, I am interested in analyzing it.
On the other hand, the logic of the permanent contango still seems weak to me. If it really existed, every institutional fund would already be capturing it. And since they do not do it in a sustained way, something does not close at all.
I'm thinking maybe the answer is in synthetics, not traditional products. Artificially armed spreads between ETFs, for example, may give a more predictable curve.
What if instead of looking for a perfect curve, we accept variability and design a system that benefits from that? In the end, trying to force the market to behave as you want is the safe recipe for frustration.
Thanks to those who spoke of the VIX. It is a world apart, but it certainly has valuable elements to study structure of futures. I will dedicate a few weeks of deeper analysis to it.
In the end, rather than looking for a stable raw material, I’m starting to look for patterns within the “noise” of curves. Maybe there’s the key: not finding the perfect curve, but understanding when and why it changes.
Does anyone have experience with seasonal spreads? For example, in agricultural commodities such as corn or wheat. I read that there are repetitive behaviors every year. Do they work or is it another myth of technical analysis?
Another line I'm exploring is crossing future structures with analysis of cotangos in ETFs as contango/roll yield in USO or VXX. It's not the same, but it gives interesting perspectives on how the market anticipates trend changes.
I was reviewing the spread between coffee futures. I was struck by its volatility, but also the cyclical repetition in certain months. Perhaps it is a candidate for a hybrid system: limited grid + seasonal filter.
In the end, I see that the biggest problem is not finding the ideal structure, but having discipline to operate under constant uncertainty, because mathematical models serve until the market laughs at them.
If I could give myself advice six months ago, it would be: don't look for certainties in a market designed to punish mental rigidity.The key is to be flexible without becoming impulsive.
Returning to the original theme: if the wood has been in contango for two years, is it because of structural change or simply because of oversupply? Because if it is the first, maybe there is an opportunity. If it is the second, it can be reversed tomorrow.
Would it be nice to have access to complete historical data of forward curves of each commodity. Does anyone know if there is any free or cheap site that offers this beyond Bloomberg?
If we don’t get a constant structure, why not look for a “recurrent”? That is, something that is repeated frequently enough to be predictable. It doesn’t have to be perfect, just usable.
A crazy idea: to use machine learning to detect changes in the slope of the curve. Did anyone try it? Is it worth it or is it pure technical noise to impress investors?
Thanks to all those who added up from real knowledge and not from pride. Learning from those who are in the mud and not in theory is invaluable.
I leave with more questions than answers, but that's what I enjoy most about the process. Thank you for keeping the thread level and respect.
I'm going to compile all the answers and put together a small report with what I made clear.
Did any of you operate on natural gas spreads? They say they have a very strong logic in winter, but I never was encouraged by their volatility. Is it true or pure myth?
A big problem with spreads is that many backtests are made without including real costs. Slippage, rollover, commissions... all of that destroys the most “good” systems.
I'm seeing if with options I can replicate a future curve without so much tied capital. It's not the same, but the way to capture slope is similar.
I hope one day there's a serious course on forward structures, there's too much confusion and badly used terminology, and that's a key area for advanced traders.
The good thing about this thread is that we are already far away from wood and closer to cross-sectional knowledge. Because in the end, understanding structures is understanding how the market thinks.
I love how the thread grew beyond a simple question. Thank you all for sharing, questioning, contributing. This is how you build a real community of traders.
To close for now: I keep looking for an instrument with stable structure, but I already understood that it may not exist. The important thing is how to navigate change, not how to avoid it. Thank you for opening my eyes.
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