An Evaluation of how Forecasting Efficiency Leads to Reduced Firm Risks

The United States (US) Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates (WASDE) provides forecasts of domestic sugar production and consumption as well as Mexican sugar production. These forecasts are used to assist the USDA in the implementation of US sugar policy. Therefore, this study evaluates the accuracy, bias, and efficiency properties of the USDA WASDE sugar forecasts. Results indicate USDA WASDE domestic sugar production and consumption forecasts, and Mexican sugar production forecasts, are accurate, unbiased, and efficient. US sugar policy helps to ensure the predictability of sugarrelated forecasts, which may then generate positive economic effects for sugar-using firms (SUFs) that rely on reliable knowledge and ability to hedge supplies of an important production input. We postulate that forecast predictability, in turn, reduces SUFs’ risks compared to other agribusinesses. We further postulate that a lower risk environment leads to a superior economic environment for SUFs in which they can financially outperform other agribusiness firms.