Merits of an Aggregate Futures Price Forecasting Model for the All Wheat U.S. Season-Average Farm Price

To inform their forecasts, U.S. wheat analysts concerned with production, marketing, and policy issues use the U.S. Department of Agriculture all wheat season-average farm price (SAFP) as reported in World Agricultural Supply and Demand Estimates (WASDE). A futures-based forecasting model linked to hard red winter (HRW) futures prices (Hoffman and Balagtas, 1999) provides important input into the development of the monthly WASDE all wheat SAFP projection. However, in recent years, price relationships among the major classes of wheat have changed, suggesting that additional wheat futures prices should be included in the model. This report presents an alternative, aggregate futures-based forecasting model that utilizes the three available wheat futures contract prices: HRW, soft red winter (SRW), and hard red spring (HRS), which represents the majority of U.S. wheat production. Results show the aggregate futures-based model tends to provide forecasts with a lower mean absolute percent error and a more accurate prediction of positive directional movement than the HRW-only model. Further, the aggregate model more closely tracks the monthly WASDE SAFP projections.