Commodity Futures Prices as Forecasts

Futures markets provide contemporaneous price quotations for a constellation of contracts with maturities thirty or more months in the future, and a large literature exists about interpreting these prices as forecasts. Futures markets simultaneously determine a price level and price differences appropriate to contract temporal definitions. Futures prices can efficiently reflect a complex set of factors but still provide poor forecasts. Forecasts based on quantitative models cannot, however, improve on efficient futures prices as forecasting agents; empirical models provide as poor, if not poorer, forecasts. I discuss analogous ideas for basis forecasts.