Forecasting Commodity Price with Futures Contract Prices

FORECASTING COMMODITY PRICE WITH FUTURES CONTRACT PRICES By Dwight R. Sanders and Mark R. Manfredo The basis ratio of cash/futures prices provides a good forecast about the future … since the procedure is very quick and easy, these forecasts, if nothing more, can provide a check over the forecasts generated by complex statistical models… uses heating oil price as a proxy for diesel fuel price. Accurate cost budgets are essential for setting up business plans. Often, price forecasts for commodity-related products are a crucial ingredient in formulating budgets for manufacturing and transportation companies. For instance, a national trucking company must budget diesel fuel costs when planning their fiscal year. A number of alternative methods are available for making commodity price forecasts. However, research has shown that the price of a futures contract is often a more accurate price forecast than the one produced by government experts. A futures contract price also tends to be more accurate than the one derived with statistical techniques. Futures contracts are traded by commercial users of the commodity and speculators in a public market. As such, futures prices reflect ...