Improving Cattle Basis Forecasting

Successful risk management strategies for agribusiness firms based on futures and options contracts are contingent on their ability to accurately forecast basis. This research addresses three primary questions as they relate to basis forecasting accuracy: (a) What is the impact of adopting a time-to-expiration approach, as compared to the more common calendar-date approach? (b) What is the optimal number of years to include in calculations when forecasting livestock basis using historical averages? and (c) What is the effect of incorporating current basis information into a historical-average-based forecast? Results indicate that use of the time-to-expiration approach has little impact on forecast accuracy compared to using a simple calendar approach, but forecast accuracy is improved by incorporating at least a portion of current basis information into basis forecasts.


Issue Date:
2004-08
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/31115
Published in:
Journal of Agricultural and Resource Economics, Volume 29, Number 2
Page range:
228-241
Total Pages:
14




 Record created 2017-04-01, last modified 2017-08-24

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