Forecasting Commodity prices with switching regimes: A MS-VAR approach for fish meal price

The objective of this paper is to present a parsimonious forecasting model of the fish meal price. The focus is on the soybean meal market’s impact on the fish meal price together with the stocks-to-use as an indicator of demand and supply conditions. A salient feature of the fish meal market is the impact of El Niño events on fish meal supply. This possibly leads to two different price regimes, one where the fish meal price is highly correlated with the soybean meal price, and another, during El Niño events, where fish meal supply is low and the fish meal price is not strongly correlated with the soybean meal price. The results from the Markov-switching autoregressions indicate two price regimes where one is mostly governed by the soybean meal price while the other is governed by the level of stocks-to-use.