The purpose of this problem set is to use information available from the USDA in an applied price forecasting exercise. Basic economic tools called elasticities are used with publicly available supply and demand information to forecast futures prices. This procedure is a good starting point for analyzing prices of any non-storable commodity. The focus in this problem set will be on forecasting hog prices. Assume it is June 29, 2018. On June 28, the USDA released the June Hogs and Pigs report. This report contains information on current and future hog supplies as of June 1, 2018. You are interested in forecasting prices of the lean hog futures contracts expiring in late 2018 and early 2019. A producer might incorporate this information into decisions of whether or not to hedge expected hog marketings or a speculator might use it to decide whether to take a long or short position. The futures contracts you are to forecast prices for are the contracts which will expire during the months of OCT18, DEC18, and FEB19. 1. The first step involves interpreting supply information. Information on the following two pages are hog numbers taken from the USDA Hogs and Pigs report. You need to determine which weight groups will be arriving at market during the delivery period of the futures contracts. The following information is available on the hog production process. The average weight of a finished hog sold in the U.S. is 280 pounds. After a pig reaches 50 pounds, the average rate of gain for hogs on feed is 1.5 pounds per day. Further, there are typically 2 months (60 days) between farrowing (birth of a litter of pigs) and when pigs reach 50 pounds and are ready to go on feed. The USDA Hogs and Pigs report contains the following information. The Market Hogs and Pigs numbers are the numbers of hogs, by weight, which producers plan to market as slaughter hogs. The Sows Farrowing numbers list the number of sows which farrowed pigs during the quarters of the production year. A unique and interesting feature of this report is that in it is reported the number of sows which producers intend to farrow in the next two quarters. For example, the June report provides the number of sows producers intend to farrow during the June-August quarter, and during the September-November quarter. The market hogs which will be sold for the next year can be estimated from these groups. After the Hogs and Pigs report data is one page from the June release of USD
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