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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

The question addressed in this study is which length of historical moving average provides the best forecast of futures basis. Differences in observed forecast accuracy among the different moving averages are usually less than a cent per bushel, and most are not statistically significant. Further, the search for an optimal length of moving average may be futile since the optimal length depends on how much structural change has occurred. Our recommendation is to use moving averages when there has been no structural change and to use last year’s basis or an alternative approach if the forecaster perceives that a structural change has occurred.

Suggested Citation

  • Hatchett, Robert B. & Brorsen, B. Wade & Anderson, Kim B., 2010. "Optimal Length of Moving Average to Forecast Futures Basis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(01), pages 1-16.
    • Handle: RePEc:ags:jlaare:61057
    DOI: 10.22004/ag.econ.61057
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    11. 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(01), pages 1-14.
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    1. Song, Wenxing & Fortenbery, T. Randall, 2017. "Forecasting Hard Red Winter and Soft White Wheat Basis in Washington State," 2017 Conference, April 24-25, 2017, St. Louis, Missouri 285875, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. Pudenz, Christopher C. & Schulz, Lee L., 2021. "Packer Procurement, Structural Change, and Moving Average Basis Forecasts: Lessons from the Fed Dairy Cattle Industry," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 46(3), September.
    3. 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.
    4. Bullock, David W. & Wilson, William W., "undated". "Factors Influencing the Gulf and Pacific Northwest (PNW) Soybean Export Basis: An Exploratory Statistical Analysis," Agribusiness & Applied Economics Report 288512, North Dakota State University, Department of Agribusiness and Applied Economics.
    5. Fernandez-Perez, Adrian & Frijns, Bart & Gafiatullina, Ilnara & Tourani-Rad, Alireza, 2022. "Profit margin hedging in the New Zealand dairy farming industry," Journal of Commodity Markets, Elsevier, vol. 26(C).
    6. Kim, Sanghyo & Zulauf, Carl & Roberts, Matthew, 2015. "Forecasting Returns to Storage: The Role of Factors other than the Basis Strategy," 2015 Conference, April 20-21, 2015, St. Louis, Missouri 285828, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    7. Coffey, Brian K. & Tonsor, Glynn T. & Schroeder, Ted C., . "Impacts of Changes in Market Fundamentals and Price Momentum on Hedging Live Cattle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(01).
    8. Bullock, Shaina S. & Bullock, David W. & Wilson, William W., 2023. "Short-Term Factors Influencing Corn Export Basis Values in the Pre- and Post-COVID Periods: A Comparison of Econometric and Machine Learning Approaches," 2023 Conference, April 24-25, 2023, St. Louis, Missouri 379019, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    9. Hayhurst, Emma & Brorsen, B. Wade, . "Resilience of Grain Storage Markets to Upheaval in Futures Markets," Research on World Agricultural Economy, Nan Yang Academy of Sciences Pte Ltd (NASS), vol. 4(2).
    10. Marie Coiffard & Laëtitia Guilhot, 2012. "Migrations internationales : la mobilité des Hommes, facteur d'intégration régionale en Asie Orientale ?," Post-Print halshs-00755102, HAL.
    11. Rangga Handika & Sania Ashraf, 2018. "Financialized Commodities and Stock Indices Volatilities," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 153-164.
    12. Bekkerman, Anton & Brester, Gary W. & Taylor, Mykel, 2016. "Forecasting a Moving Target: The Roles of Quality and Timing for Determining Northern U.S. Wheat Basis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(01), pages 1-17, January.
    13. Payne, Nicholas & Karali, Berna, 2015. "Can Cattle Basis Forecasts Be Improved? A Bayesian Model Averaging Approach," 2015 Conference, April 20-21, 2015, St. Louis, Missouri 285826, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    14. Joaquin Alfredo-Angel Rubalcaba & José R. Bucheli & Camila Morales, 2024. "Immigration enforcement and labor supply: Hispanic youth in mixed-status families," Journal of Population Economics, Springer;European Society for Population Economics, vol. 37(2), pages 1-38, June.
    15. Kim, Sanghyo & Zulauf, Carl, 2014. "Return and Risk Performance of Basis Strategy: A Case Study of Illinois Corn and Soybeans, 1975-2012 Crop Years," 2014 Conference, April 21-22, 2014, St. Louis, Missouri 285816, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    16. Onel, Gulcan & Karali, Berna, 2014. "Relative Performance of Semi-Parametric Nonlinear Models in Forecasting Basis," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169795, Agricultural and Applied Economics Association.
    17. Miller, Noah & Taylor, Mykel & Ciampitti, Ignacio & Tack, Jesse, 2021. "Forecasting Winter Wheat Basis with Soil Moisture Measurements," 2021 Conference 316408, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    18. Sanders, Daniel J. & Baker, Timothy G., 2012. "Forecasting Corn and Soybean Basis Using Regime-Switching Models," 2012 Conference, April 16-17, 2012, St. Louis, Missouri 285765, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    19. Bullock, David W. & Wilson, William W. & Lakkakula, Prithviraj, 2020. "Short-Term Dynamics and Structural Changes in the United States and Brazil Soybean Basis: Seasonality, Volatility, Structural Breaks and Information Flows," 2020 Conference, St. Louis, Missouri 309641, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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