Backwardation

There is a comedian named Norm Crosby who molded a career out of humorous, grammatical gaffes known as malaprops ("Listen to the blabbing brook" or "Find out if she is staying over or is communicating"). Backwardation, at first glance, seems to be a word right out of one his routines ("The car was in backwardation when he got in it!")

Backwardation actually refers to a market condition in which the price of a commodities' futures contract is trading below it's expected spot price at contract maturity. Depending on the source you read, it is argued that backwardation is abnormal, and perhaps even just a theory. It can also be indicative of supply insufficiencies in the corresponding market, and/or perhaps a seasonal aspect of the commodity. Is it perishable? If so, the prices would go down the longer you hold it.

Example: The wholesale commercial gas market entered backwardation during the month of March, 2013. The 2-year contract prices fell below the price of 1-year contracts.