Optimal procurement under backwardation and the benefits of the manifestation of demand aggregators

Normal backwardation manifests when the futures price of a commodity is below the expected future spot price. In this paper, we show how businesses can optimally leverage backwardation in their supply chain optimization. To that end, we derive the optimal amount a business ought to purchase in the futures market to take advantage of the favorable futures price in order to minimize the overall expected procurement cost. We further use Hoeffding's inequality to predict the manifestation of demand aggregators.