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Composite Qualitative Forecasting of Futures Prices: Using One Commodity to Help Forecast Another

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  • Li, Anzhi
  • Dorfman, Jeffrey H.

Abstract

Managers of businesses that involve agricultural commodities need price forecasts in order to manage the risk in either the sale or purchase of agricultural commodities. Sometimes the most important forecasting component is simply whether the price will move up or down. Such binary forecasts are commonly referred to as qualitative forecasts. This paper examines whether qualitative forecasting of commodity prices can be improved by the inclusion within the model specification of price forecasts for other commodities. We use hog prices as a test case and find strong support for the inclusion of other commodity price forecasts in the best forecasting models. Unfortunately, the out-of-sample performance of these models is mixed at best. Still, the results suggest qualitative forecasts can be improved through the inclusion of other commodity price forecasts in our models.

Suggested Citation

  • Li, Anzhi & Dorfman, Jeffrey H., 2014. "Composite Qualitative Forecasting of Futures Prices: Using One Commodity to Help Forecast Another," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169790, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea14:169790
    DOI: 10.22004/ag.econ.169790
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    References listed on IDEAS

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    1. Peter M. Feather & Michael S. Kaylen, 1989. "Conditional Qualitative Forecasting," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(1), pages 195-201.
    2. Kastens, Terry L. & Schroeder, Ted C., 1996. "Efficiency Tests Of July Kansas City Wheat Futures," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(2), pages 1-12, December.
    3. Gerlow, Mary E. & Irwin, Scott H. & Liu, Te-Ru, 1993. "Economic evaluation of commodity price forecasting models," International Journal of Forecasting, Elsevier, vol. 9(3), pages 387-397, November.
    4. Jeffrey H. Dorfman, 1998. "Bayesian Composite Qualitative Forecasting: Hog Prices Again," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 543-551.
    5. Allen, P. Geoffrey, 1994. "Economic forecasting in agriculture," International Journal of Forecasting, Elsevier, vol. 10(1), pages 81-135, June.
    6. Jon A. Brandt & David A. Bessler, 1981. "Composite Forecasting: An Application with U.S. Hog Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 63(1), pages 135-140.
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    Keywords

    Agribusiness; Demand and Price Analysis; Research Methods/ Statistical Methods;
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