We introduce a return predictor related to the slope and curvature of the futures term structure: basis-momentum. Basis-momentum strongly outperforms benchmark characteristics in predicting commodity spot and term premiums in the time series and cross section. Exposure to basis-momentum is priced among commodity-sorted portfolios and individual commodities. We argue that basis-momentum captures imbalances in the supply and demand of futures contracts that materialize when the market-clearing ability of speculators and intermediaries is impaired, and that basis-momentum represents compensation for priced risk. Our findings are inconsistent with alternative explanations based on storage, inventory, and hedging pressure.

Keywords: Basis-momentum, term structure of commodity futures returns, maturity-specific price pressure, commodity factor pricing model, volatility risk

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