Optimal Length of Moving Average to Forecast Futures Basis
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.
|Date of creation:||Apr 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (217) 333-1810
Fax: (217) 333-5538
Web page: http://www.farmdoc.uiuc.edu/nccc134/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mikhail Chernov & A. Ronald Gallant & Eric Ghysels & George Tauchen, 2002.
"Alternative Models for Stock Price Dynamics,"
CIRANO Working Papers
- 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.
- Shi‐Miin Liu & B. Wade Brorsen & Charles M. Oellermann & Apul L. Farris, 1994. "Forecasting the nearby basis of live cattle," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 14(3), pages 259-273, 05.
- 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.
- 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).
- Townsend, John P. & Brorsen, B. Wade, 1997.
"Cost of Forward Contracting Hard Red Winter Wheat,"
1997 Annual Meeting, July 13-16, 1997, Reno\Sparks, Nevada
35749, Western Agricultural Economics Association.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ags:nccc09:53048. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.