Economics at your fingertips  

Incorporating Uncertainty into USDA Commodity Price Forecasts

Michael Adjemian, Valentina Bruno and Michel Robe ()

American Journal of Agricultural Economics, 2020, vol. 102, issue 2, 696-712

Abstract: From 1977 through April 2019, USDA published monthly season‐average price (SAP) forecasts for key agricultural commodities in the form of intervals meant to indicate forecasters' uncertainty but without attaching a confidence level. In May 2019, USDA eliminated the intervals and began publishing a single point estimate—a value that has a very low probability of being realized. We demonstrate how a density forecasting format can improve the usefulness of USDA price forecasts and explain how such a methodology can be implemented. We simulate 21 years of out‐of‐sample density‐based SAP forecasts using historical data, with forward‐looking, backward‐looking, and composite methods, and we evaluate them based on commonly‐accepted criteria. Each of these approaches would offer USDA the ability to portray richer and more accurate price forecasts than its old intervals or its current single point estimates. Backward‐looking methods require little data and provide significant improvements. For commodities with active derivatives markets, option‐implied volatilities (IVs) can be used to generate forward‐looking and composite models that reflect (and adjust dynamically to) market sentiment about uncertainty—a feature that is not possible using backward‐looking data alone. At certain forecast steps, a composite method that combines forward‐ and backward‐looking information provides useful information regarding farm‐level prices beyond that contained in IVs.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in American Journal of Agricultural Economics from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2023-08-06
Handle: RePEc:wly:ajagec:v:102:y:2020:i:2:p:696-712