A quarterly feeder cattle price forecasting model with application towards the development of a futures market strategy

The specific objectives of this study were: 1) to develop a price forecasting equation for feeder cattle and 2) to examine the possibility of reducing the variance in income and raising the level of revenue relative to that which would be achieved under the common practice of consistently selling feeder cattle in the cash market.

To these ends, a structural model for the feeder cattle market in the United States was developed in order to isolate the important variables to be used in the construction of a quarterly price forecasting model. Time series methods described by Box and Jenkins were employed in the construction of the forecasting equations.

Selected strategies were developed which incorporated trading in the futures market for feeder cattle based on the price forecasts. The trade-off between mean income and the mean square error of income is indicated by a test, within the range of the data base, of the various strategies for the volatile years 1972-1975.