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Multivariate forecasting of a commodity portfolio: application to cattle feeding margins and risk

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  • Glynn Tonsor
  • Ted Schroeder

Abstract

Traditionally, economists have utilized univariate approaches to forecast prices, even for firms operating in multicommodity environments. This research improves the way in which managerial decision making is analysed by developing a model better representing the price risks and opportunities faced by firms that produce using a portfolio of commodities. Using the situation of cattle feedlot investors and managers as an example, this is accomplished by recognizing the multivariate (live cattle, feeder cattle and corn prices) situation that feedlots operate in and employing corresponding multivariate simulation techniques. Evaluation suggests that properly modelling the cattle feeding margin as a multivariate set of prices significantly improves the accuracy of forecasting future feeding margin values realized in the cash market. The model also suggests incorporating both implied and historical time-varying volatility information when forecasting margin variability. Implications for other multicommodity situations and future research are also provided.

Suggested Citation

  • Glynn Tonsor & Ted Schroeder, 2011. "Multivariate forecasting of a commodity portfolio: application to cattle feeding margins and risk," Applied Economics, Taylor & Francis Journals, vol. 43(11), pages 1329-1339.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:11:p:1329-1339
    DOI: 10.1080/00036840802600517
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    Cited by:

    1. McKendree, Melissa G.S. & Tonsor, Glynn T. & Schulz, Lee L., 2021. "Management of Multiple Sources of Risk in Livestock Production," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 53(1), pages 75-93, February.
    2. Christopher N. Boyer & Karen L. DeLong & Andrew P. Griffith & Charles C. Martinez, 2024. "Factors influencing United States cattle producers use of livestock risk protection," Agricultural Economics, International Association of Agricultural Economists, vol. 55(4), pages 677-689, July.
    3. McKendree, Melissa G.S. & Tonsor, Glynn T. & Schulz, Lee, 2017. "Feedlot operators’ decision making regarding price and animal health risk," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258462, Agricultural and Applied Economics Association.

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