Do Futures Prices Help Forecast Spot Prices? Evidence from China’s New Live Hog Futures

Tao Xiong, Miao Li and Jia Cao ()
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Tao Xiong: School of Agricultural Economics and Rural Development, Renmin University of China, Beijing 100872, China
Miao Li: College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China
Jia Cao: School of Applied Economics, Renmin University of China, Beijing 100872, China

Agriculture, 2023, vol. 13, issue 9, 1-16

Abstract: China, the largest hog producer and consumer globally, has long experienced significant fluctuations in hog prices, partly due to the lack of rational expectations for future hog spot prices. However, on 8 January 2021, China’s first futures in animal husbandry, the live hog futures, were listed on the Dalian Commodity Exchange. To investigate the forecasting performance of the new live hog futures on forthcoming hog spot prices, we developed six futures-based forecasting models and utilized data on daily hog spot and futures prices from January 2021 to March 2023. Our results show that all six models consistently generate more accurate forecasts than the no-change model across six prediction horizons and four accuracy measures, indicating that China’s new live hog futures prices help forecast forthcoming hog spot prices. Among the futures-based forecasting models, futures spread-based models generally produce the best forecasts for one-, two-, three-, and four-month-ahead forecasting, while the simple linear regression using both spot and futures prices is the best for five- and six-month-ahead forecasting. Our results suggest that live hog futures are a promising and practical tool for various stakeholders in China’s hog industry to develop rational expectations for future hog spot prices.

Keywords: live hog futures; forecasting; futures spread; spot price; futures price (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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