Modeling Ex Ante Price Expectations within the U.S. Broiler Market

Andrew McKenzie and Matthew T. Holt

No 285738, 1981-1999 Conference Archive from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: A statistically optimal inference about market agents' ex ante price expectations within the U.S. broiler market is derived using futures prices of related commodities in conjunction with a quasi-rational forecasting regression equation. Specifically, the relationship between the variances and covariances among broiler cash prices, and spot futures prices of related commodities are exploited. The relationship between movements in the relevant cash price series and movements in related futures prices allows us to decompose changes in the expected cash price series into anticipated and unanticipated components. This modeling approach follows closely the work of Hamilton (1992), and allows us to determine the relative importance of various informational sources in the formation of broiler price expectations. The modeling framework is extended beyond that considered by Hamilton in that production is added to the model. As such, this is the first known attempt to endogenize supply response using futures prices within a quasi-rational expectations framework. Both the true supply shock and ex post broiler price forecast errors were found to have a small but significant influence on ex ante price expectations. The quasi-rational forecasting regression, however, captured most of agents' ex ante price expectations over the sample period.

Keywords: Marketing (search for similar items in EconPapers)
Date: 1999-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nc8191:285738

DOI: 10.22004/ag.econ.285738

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