My household entered into a forward contract for winter heating propane today. From Investopedia.com, a forward contract is:
A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. Although the delivery is made in the future, the price is determined on the initial trade date.
A forward contract is similar to a futures contract but the buyers and sellers tend to know each other. Futures contracts are traded on organized exchanges, like NYMEX.
We locked in at $1.699/gal for Sept through April. We did not do the research that we should have, but simply guessed that the risk of high prices outweighed the chance that prices might drop.
The supply side of the market says that prices should fall. According to the EIA, August propane stocks are about 20% higher than a year ago, production is up 2%, and imports are up 30%. The demand side of the market says that prices should fall. August demand is up 30%. All of this will change once the winter heating season heats up (get the joke? heats up, ha). Unfortunately, the EIA's winter fuels outlook report doesn't come out until October (check out the seasonal demand chart from the EIA).