Economist Paul Heyne looked in the newspaper and found that in December of 1991 the price of wheat was $4.05 a bushel. The futures price for March 1992 was $3.87, the May price $3.64, the July price $3.33, September was $3.31, and the futures price for the following December was $3.51. What is the implication of these price trends?
A) Buying wheat futures was a pretty bad deal.
B) Speculators were forecasting increased scarcity of wheat.
C) Speculators were not forecasting increased scarcity of wheat.
D) Selling wheat futures was a pretty bad deal.

Question

Quizplus · Accepted Answer

The futures prices for wheat decreasing over time implies that speculators were not forecasting increased scarcity of wheat. If they were, the prices would have increased instead of decreased. This suggests that there was not a strong demand for wheat in the future, leading to lower prices.

Economist Paul Heyne Looked in the Newspaper and Found That