What are futures in the context of commodities?

Futures are a type of financial contract that obligates the buyer to purchase, and the seller to sell, an asset at a predetermined future date and price. This means that when it comes to commodities, futures specifically reflect estimates of what the commodity values will be at a future point in time. The price set in the futures contract is often based on current market conditions, expectations about supply and demand, and other factors.

Understanding the purpose of futures contracts is important because they allow traders and producers to hedge against price fluctuations, providing an avenue for them to manage risk associated with the volatility of commodity markets. Essentially, traders leverage this financial instrument to speculate on future price movements, making it inherently tied to the estimation of future market values.

The other options do not correctly describe the essential nature of futures; rather they discuss related concepts such as price guarantees and predictions. Futures explicitly focus on a predetermined agreement about future pricing rather than simply estimating or predicting outcomes without a formal contract.