Forecasting Milk Prices With VAR Models – Application to Farm Gate Price in Finland

21 Pages Posted: 31 Oct 2019

See all articles by Leena Kalliovirta

Leena Kalliovirta

University of Helsinki - Department of Statistics

Olli Niskanen

affiliation not provided to SSRN

Anna-Maija Heikkilä

Natural Resources Institute Finland (LUKE)

Date Written: October 22, 2019

Abstract

The goal of our study is to analyze the associations between Finnish and global milk markets and use the results to predict the Finnish milk price. We develop a theoretical framework of the factors affecting the milk price in Finland and test the predictive power within Vector Autoregressive (VAR) model. We employ the monthly farm gate price of milk, the quantity of milk produced, and other available monthly variables that depict the global milk markets from January 2007 to December 2016. We forecast their values for January 2017–August 2019 using only the observations from the estimation period. Thus, we make 1-step to 32-steps forecasts and measure the accuracy of forecasts with the MSPE. The greatest forecasting power for the milk price in Finland are the VAR models with combination of three or four variables: the lagged price of milk in Finland, the price of oil, the world feed price, and the quantity of milk produced. We also build forecasts where the observed series of oil future from January 2017 until August 2019 replace the forecasted prices of the oil. For the first 18 months, the oil future prices improve the forecasts, but then the both schemes forecast equally well.

Keywords: VAR models, milk price, future oil price, forecasting

JEL Classification: Q02, Q13, Q17

Suggested Citation

Kalliovirta, Leena and Niskanen, Olli and Heikkilä, Anna-Maija, Forecasting Milk Prices With VAR Models – Application to Farm Gate Price in Finland (October 22, 2019). Available at SSRN: https://ssrn.com/abstract=3473862 or http://dx.doi.org/10.2139/ssrn.3473862

Leena Kalliovirta (Contact Author)

University of Helsinki - Department of Statistics ( email )

Finland

Olli Niskanen

affiliation not provided to SSRN

Anna-Maija Heikkilä

Natural Resources Institute Finland (LUKE) ( email )

P.O. Box 18 (Jokiniemenkuja 1)
Vantaa, FI-01301
Finland

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