A squeeze in commodities occurs when there are not enough supplies of a product and global demand remains high. Hence, commercial companies (food companies, grain exporters, natural gas distributors, etc.) panic and buy an excessive amount of futures contracts in order not to be “squeezed” out: or unable to acquire adequate supplies to fill the needs of customers. When this happens, something we call “backwardation” occurs.

Backwardation is a term used to describe a commodities market when the spot rates are higher than the future price of that certain commodity. In other words, there is a downward sloping forward curve relative to the spot rate set for the maturity of the commodity. “Contango” is the term for a market’s forward price curve that rises above the spot level. This video below (click below) explains all of this.

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