THE SPOT-FORWARD RELATIONSHIP IN ATLANTIC SALMON FORWARD PRICES
Salmon farming is a rapidly growing industry. Traditionally, spot markets have been the main mode of transaction, while recently new transaction modes such as futures and forward markets have emerged. Still, there is very limited knowledge of how these markets work and particularly the relationship between spot and forward prices for farmed salmon. That is the topic of this study.
First we examine the relationship between spot and forward prices and whether forward prices are unbiased predictors of the future spot price. Then we examine the lead-lag properties of the spot and forward prices using Granger causality tests for integrated prices. Using data for 2006-2014 and with forward prices with maturities up to 12 months we find that spot and lagged forward prices (i.e. also examining for forwards as predictors of future spot prices) are cointegrated up to maturities of 6 months. We also find that, with the exception of the front month, that the causality is one-directional. The spot prices lead forward prices between 1 to 6 months maturity. Hence, while the spot and lagged forward prices are unbiased estimates, we do not find support for the hypothesis that forward prices are predictors of the future spot price for maturities longer than 2 months. Rather, it seems that innovations in the spot price ripple out into the forward prices. This is contrary to findings in other commodities, where the opposite tends to be the case, but is not uncommon in new and immature markets. Hence, salmon forward markets are still immature and have not yet reached the stage where forward prices are able to predict future spot prices.
Key words: Atlantic salmon, forward prices, cointegration, Granger causality