How to Set Commodity Budget Rates for 2027 (Futures vs. Forecast)

If you budget 2027 skimmed milk powder at the EEX futures strip, you build in more than the Vesper forecast.

Do the same for butter and you land below it.

Same milk. Same exchange. Opposite errors.

Budget season puts finance on your desk for a 2027 procurement number. This post gives you a 7-step method to set a commodity budget rate you can defend, with a worked SMP example and where the 2027 futures sat against our forecast for six ingredients.

Budgets are one part of a wider job. If you want the full picture first, start with our guide to managing commodity price risk in food manufacturing. This post zooms in on one number: the price per tonne that goes into next year’s plan.

What is a commodity budget rate?

A commodity budget rate is the price per tonne a company plans to pay for an input over the budget year, also called the budget price or standard cost. It blends the locked price of volume already contracted with a reference price (spot, futures or a forecast) for the volume still open.

That sounds simple.

Here’s the thing: most teams treat it as one number pulled from one source. Usually today’s price, or the futures strip, copied into a spreadsheet in October.

But the reference price is a choice, and for 2027 that choice moves the budget a long way on some ingredients.

Let’s set it properly.

How to set a commodity budget in 7 steps

Step #1: Split your 2027 volume into covered and open

Start with tonnes, not prices.

For each ingredient, list your forecast 2027 volume by month or quarter. Then mark how much is already covered:

• Fixed-price supplier contracts
• Forward purchases
• Futures hedges
• Index-linked contracts with a cap or fixed component

Everything else is open volume.

The covered share (your cover %) is the most important input in the whole budget. It decides how much of your 2027 cost is already known and how much is still exposed to the market.

Cover rarely appears in one go. Most teams build it in tranches over several quarters. If you want the mechanics, our post on forward buying and layered cover shows how cover % builds up quarter by quarter, with a backtest on butter, cocoa and sugar.

Step #2: Price covered volume at contract prices

This part is arithmetic.

Take each contract, multiply volume by contract price, add them up, and divide by covered volume. That gives you a weighted average contract price.

Use the price you will actually pay at delivery. If a contract is index-linked, price it at your best estimate of the index for the delivery months, and treat that part as open in the stress test.

Step #3: Choose a reference price for open volume

This is where budgets go wrong.

You have three common choices: today’s spot price, the futures (or forward) curve, or a forecast. Each answers a different question.

A futures price is the price at which someone will trade with you today. A forecast is an estimate of where the price will be. Those two can sit far apart, for good reasons. We explain why a futures price is not a prediction in a separate post.

Our rule: budget at the price you expect to actually pay.

If your policy is to hedge or forward-buy the open volume in Q4 2026, the curve is your price. Use the forward curves and exchange futures in Vesper for your delivery months.

If you will buy month by month through 2027, the curve is a price you chose not to take. Budget at the forecast, and show finance the futures number beside it as the price you could lock.

Step #4: Blend covered and open volume into one rate

Now combine steps 2 and 3.

Cover % and contract price come from your own books. The reference price comes from step 3.

One useful consequence: the gap between a futures-based and a forecast-based budget is only (1 − cover%) × (futures − forecast). The more you have covered, the less the choice matters.

Step #5: Add a stress band

A single budget rate hides the risk. Give finance a range.

Dairy shows why. Fonterra’s Richard Allen, on what buyers are up against:

The simplest defensible band uses the 12-month high and low of the physical price, applied to open volume only:

• High case: open volume priced at the 12-month high
• Low case: open volume priced at the 12-month low

Covered volume stays at contract price in every case. That is what cover is for.

One trap: if the market sits at its 12-month high on the day you set the rate, the “high case” is no stress at all. Use the highest month on the futures strip, or a level above the high, instead. That is exactly the situation with EU SMP right now (see the worked example below).

Step #6: Convert FX for USD-priced inputs

Some inputs trade in US dollars, and some exchanges quote in US cents per pound.

ICE arabica coffee is one. On 14 Oct 2026 the ICE Jul 2027 contract was quoted at 279.35 USc/lb (exchange futures, read in Vesper).

To turn that into a budget number:

1. Convert to USD per tonne: USc/lb × 22.0462. For Jul 2027 that is 279.35 × 22.0462 = $6,158.6/mt (our calculation).
2. Convert to your currency at your treasury’s budget FX rate. If treasury hedges the dollar, use its hedged rate, so your budget matches what the company will actually pay.

Keep the FX rate as a separate line. If you bury it inside the commodity rate, you cannot tell later whether a miss came from coffee or from the dollar.

Step #7: Re-forecast quarterly and split the variance

A budget rate set in October is out of date by March.

That is not a failure of the forecast. It is how forecasting works:

So re-forecast every quarter:

• Update cover % for new contracts and hedges.
• Re-price open volume at the latest forecast or curve.
• Report the variance against the original budget, split four ways.

Why bother? Because cover strategy changes how big the price variance gets.

In our backtest, a butter buyer who set the 2026 budget at the October 2025 EU butter price (VPI) and bought spot each quarter paid 27.8% less than that budget on average, a 27.8% miss. Buying in rolling quarterly layers came in 10.7% under it, a 10.7% miss (backtest on Vesper quarter-start prices; forward prices approximated by the price on the purchase date, no storage or financing cost).

Layering made the butter budget more accurate. It did not make butter cheaper: over 2024 to 2026 the layered buyer paid 1.7% more on average than the spot buyer (backtest).

Worked example: a dairy buyer’s 2027 SMP budget

Let me show you. The numbers below are made up and rounded so the method is easy to follow. Put your own cover, contract price, curve and forecast in their place.

In this example the 9.4% gap between the two references shrinks to 5.8% in the budget rate (180 ÷ 3,120), because 40% of the volume is already locked.

Now the stress band. On 7 Oct 2026 the EU SMP price (Vesper Price Index, EXW) was both a 12-month high and the highest print since October 2023. It stood 76.8% above its 12-month low of 10 Dec 2025 (our calculation).

So the 12-month high gives no upside stress. Use the top of the 2027 futures strip instead: on 14 Oct 2026 that was the Feb 2027 contract.

Here is the band with the same illustrative numbers, plus an assumed 12-month low of €2,000/mt and a top of the strip at €3,800/mt.

All figures are illustrative: 40% covered at €3,000/mt, the open 60% at the assumed prices.

That is a range of €1,080/mt between low and high stress. That is the number finance should see next to the base case.

If we were setting this budget and buying through the year, we’d put €3,120/mt in the plan. We’d show €3,300/mt as the price we could lock today. And we’d flag that the futures-based number carries about €180,000 of cushion that will look like “savings” later if the forecast is right.

Butter runs the other way

Now flip to EU butter price benchmarks. On 14 Oct 2026 the 2027 EEX butter futures sat below the Vesper forecast, the opposite of SMP.

To see what that does, assume butter futures average €4,500/mt and your forecast €4,700/mt. With the same 60% open, budgeting butter at futures puts your rate 0.6 × (4,500 − 4,700) = €120/mt below a forecast-based rate. That is a budget that looks good in January and misses in Q3 if the forecast is right.

One honest caveat for both dairy comparisons: the futures are EEX contracts, while the forecast tracks the Vesper Price Index. They are different references, so part of any gap is basis between the two.

The 2027 picture: futures vs forecast for six ingredients

Here is where the 2027 futures sat against the Vesper forecast on 14 Oct 2026. We compared averages over the 2027 months that have both a futures contract and a forecast point, and show the direction only.

Source: Vesper, futures curves and forecasts read 14 Oct 2026; comparison is our calculation.

What each line means for your budget:

• SMP: futures sit above the forecast. Futures-based budgets carry cushion. Check where the physical price sits before you lock anything.
• Cocoa: ICE London futures for 2027 sit above the Vesper forecast. Chocolate makers budgeting at the strip build in a buffer. See the cocoa bean prices and forecast.
• White sugar: futures sit below the forecast, as they do for butter. How much that matters depends on your cover % and stress band. Track white sugar prices for the delivery months you still need.
• Milling wheat: futures sit above the forecast. As at 14 Oct 2026 the forecast ended Sep 2027, so it lines up with a harvest-year budget better than a calendar one. See Euronext-linked milling wheat prices.
• Crude palm oil: futures sit above the forecast, but the bases differ (Bursa futures against a forecast on an EXW MPOB basis), and, as at 14 Oct 2026, the forecast ended Jun 2027. Treat this gap as a reason to dig into the basis before you budget it. Compare it with the crude palm oil price and forecast.
• Butter: futures sit below the forecast. Budgeting at the strip risks an under-budget.

Where futures and forecast sit close together, the reference choice barely matters, and your cover % and stress band do the work.

Bottom line: the reference price is a decision, and it is worth writing down why you picked it.

What to do when the forecast stops short of your budget year

On 14 October 2026 none of these six had a Vesper forecast reaching December 2027: most ran to October 2027, wheat to 13 September 2027 and palm to 14 June 2027. The horizon rolls forward, so check your own before you start.

You have two options for the missing months:

1. Carry the last forecast point forward flat. For SMP, that means repeating the October 2027 forecast value for Nov and Dec.
2. Use the futures for the missing months. For SMP, the Nov and Dec 2027 EEX contracts.

We’d pick option 1 for a forecast-based budget.

Here’s why: mixing sources creates a step at the seam, and that step comes from the spreadsheet, with no market behind it. For SMP, November futures sit above the October forecast, so switching sources would lift the budget overnight. The futures curve itself is almost flat over those months: SMP futures fall 1.6% from Oct to Dec 2027 and butter futures do not move. So a flat carry matches the curve’s own shape.

Keep the futures for Nov and Dec as your high case, and replace the carried value when the forecast rolls forward.

How to budget ingredients with no futures market

Many food ingredients have no exchange contract to hedge or to read. Two examples from Vesper’s coverage:

• WPC80: no European WPC futures exist in Vesper. On 7 Oct 2026, EU WPC 80 prices (VPI, EXW) sat inside a 12-month range that ran from 41.4% below that day’s price (Oct 2025) to 32.9% above it (24 Jun 2026). The high was more than double the low (our calculation).
• Cocoa butter: no cocoa butter futures exist in Vesper’s coverage. On 13 Oct 2026, West-EU cocoa butter (EXW AMS/RDM/HBG) sat inside a 12-month range that ran from 47.3% below that day’s price to 33.4% above it (our calculation).

For these, use this approach:

1. Base case: the Vesper forecast for the physical price, where one exists.
2. Market check: forward quotes from two or three suppliers for your delivery months. If they sit well above the forecast, ask what is in them (risk premium, financing, their own cover).
3. Wider stress band: use the 12-month high and low, and expect to need all of it.
4. More cover through contracts: with no exchange hedge, fixed-price deals or index-linked price adjustment clauses are how you reduce open volume.

A proxy can help, with care. Cocoa butter is often discussed as a ratio to cocoa beans. On 13 Oct 2026, the ratio of cocoa butter to ICE London cocoa was 20.5% lower than a year earlier (our calculation).

If you budget cocoa butter off the cocoa bean curve, the ratio is a second open risk. Stress it separately.

A note on standard cost and the planning calendar

Your budget rate usually becomes the standard cost in the ERP. Every purchase price variance for 2027 gets measured against it.

So set it once, document the inputs, and do not quietly change it mid-year. Re-forecasts go in a separate column. That keeps the price variance honest, and it shows the board how much of the year’s cost came from the market and how much from your buying decisions.

Next steps

1. Pull your 2027 volume and cover % per ingredient.
2. Price the open volume twice, at futures and at the forecast, using Vesper’s price forecasts.
3. Add the stress band and write down which reference you chose, and why.
4. For the dairy detail behind these numbers, download the EU dairy Q4 2026 market outlook.