FORMULA-DERIVED VERSUS OBSERVED MARKET PRICES: AN APPLICATION FOR SEGREGATED EARLY WEANED PIGS

Kevin Dhuyvetter ()

No 36145, 2001 Annual Meeting, July 8-11, 2001, Logan, Utah from Western Agricultural Economics Association

Abstract: A formula (the "K-State formula") for deriving the price of segregated early weaned (SEW) pigs using corn, soybean meal, and market hog prices was estimated based on equating return on investment for the different phases of swine production- farrow, nursery, and finish. USDA reported SEW pig prices were compared with prices derived from the K-State formula and several other common formulas. Based on root mean squared error and mean absolute error accuracy measures, the K-State formula did a better job of predicting spot-market prices than the other formulas. In terms of the K-State formula accurately predicting spot market prices, producers appear to form price expectations based on futures plus expected basis more so than simply futures prices or current cash prices. However, the manner in which the formula is used (i.e., method of choosing price expectations) will depend on the risk attitudes of the buyer and seller as well as the nature of their business relationship. Developing pricing formulas based on the framework outlined here (equal returns on investment) has merit for establishing prices in the absence of publicly reported information, however, it is important that users of the formula understand the conceptual framework of how and why it was developed.

Keywords: Livestock Production/Industries; Marketing (search for similar items in EconPapers)
Pages: 18
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:ags:waealo:36145

DOI: 10.22004/ag.econ.36145

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