An Evaluation Of Point And Density Forecasts For Selected Eu Farm Gate Milk Prices

Fundamental changes to the common agricultural policy (CAP) have led to greater market orientation which in turn has resulted in sharply increased variability of EU farm gate milk prices and thus farmers’ income. In this market environment reliable forecasts of farm gate milk prices are extremely important as farmers can make improved decisions with regards to cash flow management and budget preparation. In addition these forecasts may be used in setting fixed priced contracts between dairy farmers and processors thus providing certainty and reducing risk. In this study both point and density forecasts from various time series models for farm gate milk prices in Germany, Ireland and for an average EU price series are evaluated using a rolling window framework. Additionally forecasts of the individual models are combined using different combination schemes. The results of the out of sample evaluation show that ARIMA type models perform well on short forecast horizons (1 to 3 month) while the structural time series approach performs well on longer forecast horizons (12 month). Finally combining individual forecasts of different models significantly improves the forecast performance for all forecast horizons.