Is news related to GDP growth a risk factor for commodity futures returns?

Expectations about future economic activity should theoretically affect the demand for inventory holdings and therefore commodity spot and futures prices. Consistent with these predictions, we find that news related to future GDP growth is a significant factor that is priced in the cross-section of commodity futures sorted by percentage net basis. The latter is highly correlated with inventories. In particular, it establishes that commodity futures with high inventory levels provide a hedge against risk associated with future GDP growth so that investors are willing to accept lower return. By contrast, those commodity futures with low inventory levels are inversely related to the GDP-related factor so that investors require a higher return. Such results suggest that commodity futures excess returns are a compensation for risk.