I am getting confused on this: In natural backwardation producers were willing to sell their commodity BELOW the price they expected to be as a protection to business risk.Why they would sell below the expected price? Also when the prices are high and volatile i understand why consumers hedge and how.But how investors hedge in this against inflation risk?Do they short?and how does thatcreate a contango? Please clarify…
Future contract < Expected future spot price Producers are willing to sell a futures contact now to hedge event risk that may happen between now and when the future expected spot price will be valid. One can think of producers (farmers) short on commodities since they are in the business of farming, not betting on future contracts. Speculators are long and are willing to roll the dice on the price increasing.