Contango and backwardation
Contango is a term structure in which futures prices rise with maturity; backwardation is the opposite shape. It is a carry cost, not a price forecast.
Definition
Contango occurs when futures contracts with later maturities are priced higher than nearer ones (a curve that rises with maturity). Backwardation is the reverse — prices fall with maturity, which can reflect a shortage of the asset “today” (a commodity under stress, for example). This is not a forecast of the future price: it is a market structure that describes the carry cost (contango) or the carry income (backwardation) of holding the exposure.
Example
An index in contango: the December contract costs more than the September one — holding the position longer means paying that premium at every contract roll. A commodity in backwardation (oil during a shortage, say) works the other way round: the market pays you for holding the exposure.
Anti-example / common mistake
Reading the term structure as a “price forecast” and interpreting contango as “the market is going to fall”. This is not a prediction, only carry structure — what actually matters is the cost of the roll expressed as a fraction of R.