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Abstract
Following the release of the quarterly USDA Hogs and Pigs reports (HPRs), Chicago Mercantile Exchange (CME) live hog futures usually move abruptly. The objectives of this dissertation are: first, to identify critical variables in the government report that cause this price movement; second, to forecast these critical variables; third, to examine the informational content of the futures prices relative to the information contained in the HPRs.
All HPR categories are tested for their effects on the futures market. Since there are CME limitations on daily price movements, a two-tailed Tobit model is used to identify critical variables in the government reports. The critical variables are forecast by means of a Kalman filter. Spectral analysis is used to help deseasonalize the models. Akaike Information Criterion and cannonical correlation analysis are used to identify the models.
Combining the results of the Tobit model and the forecasts of HPR variables, forecasts are made of price movements following the release of the HPRs. In addition, futures prices around the HPRs are examined for their ability of forecast delivery month prices. Finally, a relationship between errors in first intentions of sows farrowing and futures prices around the HPRs is tested.
The key findings in the dissertation are as follows. One, when the HPRs are released, the following categories in the report affect nearby, intermediate, and distant live hog contracts: market herd under 60 lbs, breeding herd, and pig crop. Two, using the previous quarter's sows farrowing second intentions, the Kalman filter is an excellent method to forecast market herd under 60 lbs. Three, combining the Kalman forecasts of market herd under 60 lbs with Tobit equations of futures price movement, one can forecast price movement after the release of the HPRs with reasonable accuracy. Four, the futures market does not accurately forecast errors in first intentions of sows farrowing. Five, the ability of distant futures prices to forecast delivery month prices is neither helped nor hindered by the release of the HPRs.
