Salmon futures prices as forecasts

Abstract

Futures markets serve two main purposes, risk transfer and price forecasting. Both are relevant in the case of Norwegian farmed Atlantic salmon, as the spot price is highly volatile and hard to predict. However, the salmon futures market suffers from low liquidity, thus limiting the effectiveness of risk transfer. What about price forecasting? We consider futures prices as point forecasts of the future spot price. We evaluate them by statistical optimality criteria and find a downward bias that increases with the forecast horizon at a rate of over 10% a year. Our analysis reveals no additional evidence of forecast suboptimality. The results should be of interest to decision makers who rely on salmon futures prices as point forecasts of the future spot price.