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Optimal Length of Moving Average to Forecast Futures Basis

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  • Hatchett, Robert B.
  • Brorsen, B. Wade
  • Anderson, Kim B.

Abstract

Futures prices when combined with a basis forecast provide a reliable way to forecast cash prices. The most popular method of forecasting basis is historical moving averages. Given the recent failure of longer moving averages proposed by previous studies, this research reassesses past recommendations about the best length of moving average to use in forecasting basis. This research compares practical preharvest and storage period basis forecasts for hard wheat, soft wheat, corn and soybeans to identify the optimal amount of historical information to include in moving average forecasts. Only with preharvest hard wheat forecasts are the best moving averages longer than 3 years. The differences in forecast accuracy among the different moving averages are small and in most cases the differences are not statistically significant. The recommendation is to use longer moving averages during time periods (or at locations) when there have been no structural changes and use last year’s basis after it appears that a structural change has occurred.

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Bibliographic Info

Paper provided by NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2009 Conference, April 20-21, 2009, St. Louis, Missouri with number 53048.

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Date of creation: Apr 2009
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Handle: RePEc:ags:nccc09:53048

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Related research

Keywords: Basis forecast; grain; Law of One Price; moving averages; structural change; Agribusiness; Agricultural and Food Policy; Agricultural Finance; Crop Production/Industries; Farm Management; Financial Economics; Marketing; Research Methods/ Statistical Methods; Risk and Uncertainty;

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  1. Kim, Hyun Seok & Brorsen, B. Wade & Anderson, Kim B., 2007. "Profit Margin Hedging," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37570, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  2. Mikhail Chernov & A. Ronald Gallant & Eric Ghysels & George Tauchen, 2002. "Alternative Models for Stock Price Dynamics," CIRANO Working Papers 2002s-58, CIRANO.
  3. Townsend, John P. & Brorsen, B. Wade, 2000. "Cost Of Forward Contracting Hard Red Winter Wheat," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(01), April.
  4. Dabin Wang & William G. Tomek, 2007. "Commodity Prices and Unit Root Tests," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 873-889.
  5. Taylor, Mykel R. & Dhuyvetter, Kevin C. & Kastens, Terry L., 2004. "Incorporating Current Information Into Historical-Average-Based Forecasts To Improve Crop Price Basis Forecasts," 2004 Conference, April 19-20, 2004, St. Louis, Missouri 19022, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  6. Diaz, Edgar F. Pebe & Brorsen, B. Wade & Anderson, Kim B. & Richter, Francisca G.-C. & Kenkel, Philip L., 2002. "The Effect Of Rounding On The Probability Distribution Of Regrading In The U.S. Peanut Industry," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 20(1).
  7. B. Wade Brorsen & John Coombs & Kim Anderson, 1995. "The cost of forward contracting wheat," Agribusiness, John Wiley & Sons, Ltd., vol. 11(4), pages 349-354.
  8. Klumpp, Joni M. & Brorsen, B. Wade & Anderson, Kim B., 2007. "Determining Returns to Storage: Does Data Aggregation Matter," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 39(03), December.
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Cited by:
  1. Lee, Yoonsuk & Brorsen, B. Wade, 2012. "Impacts of Permanent and Transitory Shocks on Optimal Length of Moving Average to Predict Wheat Basis," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125001, Agricultural and Applied Economics Association.
  2. Marie Coiffard & Laëtitia Guilhot, 2012. "Migrations internationales : la mobilité des Hommes, facteur d'intégration régionale en Asie Orientale ?," Post-Print halshs-00755102, HAL.

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