Forecasting the world milk and feed prices- looking into the crystal ball

Presentation at the IFCN conference 2015, Kiel

Bjørn Gunnar Hansen, TINE SA

Yushu Li, Norwegian School of Economics

Several different approaches to forecasting…

or perhaps math?

Outline

• Research questions

• Material: The IFCN milk and feed prices 2002 - 2014

• Methods

• Results and conclusions

Reserach questions

• Which price is the most important- feedprice or milkprice?

• How can we forecast the two prices?

• Paper submitted to Agricultural Economics, March 25 2015

Figure 1. The IFCN world milk and feed prices from Jan. 2002 to Dec. 2014

Method: Combine three models

• Seasonal autoregressive integrative moving average models (SARIMA)

• Vector error correction models (VECM)

• Wavelet models

Which price leads?

….and which price follows ?

Forecasting 2014

• Training set from 2002 to 2013- validating

• Two accuracy measures of the models- I present the

MAE= |𝜀𝑡𝑇𝑡=1 |/ T

Use of statistics sometimes can«take off»

Forecast error, feed price per month USD/100 kg

Forecast error, milk price per month USD/100 kg

You may ask: How can I get the figures for 2015……2017?

• I prefer the FIFA method........

Forecast for 2015 is for free

Conclusions

• Both price series show increased volatility since 2007- 2008

• Both price series contain business cycles of between two and three years in length, as well as short term cycles of four and eight months

• The two prices are co- integrated • The feed price is the leading variable, the milk

price follows • Combination of the three methods give fairly

good forecasts for a period of one year ahead