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

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 com...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Li, Anzhi, Dorfman, Jeffrey H
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2014
Subjects
Agricultural commodities
Commodity prices
Online AccessGet full text

Cover

More Information
Summary: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.