The spot-forward relationship in the Atlantic salmon market

ABSTRACT

This study examines the Fish Pool salmon futures contract with respect to how well the market performs in terms of the futures price being an unbiased estimator of the spot price and whether the market provides a price discovery function. Using data for 2006–2014 and with futures prices with maturities up to 6 months we find that spot and lagged futures prices are cointegrated and that the futures price provides an unbiased estimate of the spot price. We also find that, with the exception of the front month, that the causality is one-directional. The spot prices lead futures prices between 1–6 months maturity. Hence, while the spot and lagged futures prices are unbiased estimates, we do not find support for the hypothesis that futures prices provide a price discovery function. Rather, it seems that innovations in the spot price influence futures prices. This finding is not uncommon in new and immature futures contracts markets. Hence, the salmon futures market is still immature and has not yet reached the stage where futures prices are able to predict future spot prices.

KEYWORDS:

• Atlantic salmon
• futures prices
• price discovery

Acknowledgments

Thanks to the reviewers for helpful comments. Any opinions and remaining mistakes are of course the authors’ responsibility.

Notes

Inelastic supply (Andersen, Roll, & Tveterås, 2008; Aasheim et al., 2011) and demand that is becoming less elastic (Asche, 1996; Xie & Myrland, 2011; Dey, Rabbani, & Singh, 2014) do of course contribute to increased price volatility, as do supply shocks (Asche, Oglend, & Zhang, 2015b) and demand shocks (Asche et al., 2015c; Sha et al., 2015). A particular feature of aquaculture species is that also supply shocks from wild fisheries can influence price volatility (Anderson, 1985; Anderson et al., 2015; Jensen et al., 2014).

Salmon prices are size dependent (Asche & Guttormsen, 2001).

This is because there is no market integration between salmon and any commodity for which there exist a futures contract. The only analysis of cross-hedges related to seafood we are aware of is Vukina and Anderson (1993), who show that fishmeal prices can be hedged with soybean meal futures contracts.

Salmon aquaculture is exposed to several types of production shocks that can lead to unexpected changes in produced quantity such as biophysical factors (Asche, Oglend, & Zhang, 2015b; Torrissen et al., 2011) and diseases (Torrissen et al., 2011).