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. Simple benchmark forecasts have considerably lower bias, and some of them tend to beat the futures prices in terms of mean absolute error and mean squared error at horizons longer than nine months. However, most of the improvements cannot be claimed with high statistical confidence. The results should be of interest to decision makers who rely on salmon futures prices as point forecasts of the future spot price.
Publications