Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current price of a spot contract, at which a particular commodity could be bought or sold at a specified place for immediate delivery and payment on the spot date. Conversely, a commodity's futures price is quoted for a financial transaction that will occur on a future date and is the settlement price of the futures contract.
Differences Between Commodity Spot and Futures Prices
The main differences between commodity spot and futures prices are the delivery dates and prices.
A commodity's spot price is the price at which the commodity could be traded at any given time in the marketplace. In contrast, a commodity's futures price is the price of the commodity in relation to its current spot price, time until delivery, risk-free interest rate and storage costs at a future date.
Calculate commodity futures prices by adding storage costs to the spot price of a particular commodity. Multiply the resulting value by Euler's number (2.718281828…) raised to the risk-free interest rate multiplied by the time to maturity. Generally, futures prices and spot prices are different because the market is always forward-looking. The difference in a commodity's spot price and future price is due to the cost of carry and interest rates.
For example, assume the spot price of gold is $1,200 per ounce and it costs $5 per ounce to store the gold for six months. The six-month futures contract on gold, given a risk-free interest rate of 0.25%, is $1,206.51, or (($1,200+$5)*e^(0.0025*0.5)).
Dan Stewart, CFA®
Revere Asset Management, Dallas, TX
The easiest way to think of this is that a spot price is the price to settle a commodity contract immediately - both the price and delivery terms. You are settling on the spot, hence "spot contract."
A futures contract will occur in the future, not immediately, hence "futures contract." With a futures contract you are locking in a price for a contract on a commodity - size, quantity and quality - at a specified date in the future.
You would think that futures prices will always be more than spot prices. But expectations of the commodity itself will affect price as well. This includes whether it will go up or down in price, which is usually determined by supply and demand due to seasonality, weather expectations, etc. Futures prices can actually be lower than spot prices.