Flirting with Models Benjamin Hoff – Commodity Futures Surfaces and the Cash-and-Carry Glue (S7E17)
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Jun 30, 2025 Benjamin Hoff, Global Head of Commodity Strategy and Research at Société Générale, shares his insights from his transition from rates to commodities. He discusses the unique cash-and-carry economics that differentiate commodities and delves into the complexities of commodity risk premiums. Hoff also introduces innovative metrics like the Lévy area to enhance trading strategies. The conversation highlights the interplay of market dynamics, seasonality, and the importance of specific trading signals, making it a compelling listen for anyone interested in commodities.
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Commodity Surface Reveals Signals
- Mapping commodity futures into a 2D surface of calendar time and time to expiry reveals that momentum and carry are derivatives of this surface.
- This surface lens captures persistence and strength of signals better than isolated factor studies.
Convexity Drives Carry Returns
- Commodity carry strategies price a second order term structure convexity risk premium, not just a linear roll yield.
- Convexity arises from supply chain microeconomics and captures how front vs back curve roll downs differ, driving returns.
Value and Skewness Aren't Surface-Based
- Popular strategies like skewness and value do not fit the surface model neatly.
- Value strategies often use price deviations from historical averages as proxies but lack a unifying fundamental framework.