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A New and Dynamic Approach for Forecasting the Margin Protection Program for Dairy Producers

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  • Tejeda, Hernan A.
  • Feuz, Dillon M.

Abstract

The 2014 Farm Bill offers dairy-producers a new safety net. The Margin Protection Program considers differences between average national prices of milk and feed (corn, soybean meal, and alfalfa). A web-based tool forecasts this margin using derivatives, considering shocks to a commodity’s futures price as differences between the futures price and its terminal/expiration price. Shocks are constructed per time to maturity (delivery horizon); considering one-month up to one-and-half years ahead (18 different shocks per commodity). Rank correlations among shocks are maintained when forecasting prices. However, these correlations are static, ignoring a crop growing season’s new information. We incorporate this new information using time-varying correlations. Moreover, we model dynamic copulas of joint time-varying correlations among newly constructed one-month delivery horizon shocks. Forecasts indicate relative improvement.

Suggested Citation

  • Tejeda, Hernan A. & Feuz, Dillon M., 2017. "A New and Dynamic Approach for Forecasting the Margin Protection Program for Dairy Producers," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 35(2).
    • Handle: RePEc:ags:jloagb:302514
    DOI: 10.22004/ag.econ.302514
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    Keywords

    Agribusiness; Risk and Uncertainty;

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