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Hog Price Forecast Errors in the Last 10 Years: The Lean Hog Futures Market & The Seasonal Index

John Lawrence and, Clay Hoffman (October, 2009)

Summary

A major purpose of livestock price forecasts is to reduce the risk associated with decisions that producers make. Iowa State University and other land grant institutions often forecast commodity prices. Using information from USDA reports, historical relationships between supplies and price, and current market conditions, they provide a forecast of what prices may be in the future. Another forecasting method is the lean hog futures market, a single location where anyone with an opinion on what prices will be in the future can essentially vote their forecast by taking a position in the market. The resulting futures prices represent a “composite” forecast at a particular point in time. Because hog prices follow a fairly predictable seasonal pattern the current price coupled with this historical relationship can be used to forecast prices, as another option.