The Informativeness of the Technical Conversion Factor for the Price Ratio of Processing Livestock

The technical conversion factor (TCF) is a survey-based estimate of the percentage of carcass weight obtained per unit of live weight. Practitioners and researchers have used it to predict the corresponding price ratio (PR). We use both in-sample regressions and out-of-sample forecasting analysis to test the validity of this approach in case of predicting the price effects of processing livestock in Europe. By regressing the PR on the inverse value of the corresponding TCF for a large panel of European countries and animal types, we find a significant positive relation between these variables, which also has economic value in terms of improving out-of-sample forecasting precision. This result is shown to be robust to animal type, year, and country fixed effects. The TCF therefore has predictive value about the corresponding PR.