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The Forecasting Value of New Crop Futures: A Decision-Making Framework

Author

Listed:
  • Dwight R. Sanders

    (Darden Restaurants)

  • Philip Garcia

    (University of Illinois at Urbana-Champaign)

  • Raymond M. Leuthold

    (University of Illinois at Urbana-Champaign)

Abstract

The statistical forecasting efficiency of new crop corn and soybean futures is the topic of frequent academic inquiry. However, few studies address the usefulness of these forecasts to economic agents' decision making. Each year Central Illinois producers are faced with the decision to plant either corn or soybeans on marginal acreage. Agronomic concerns aside, these decisions hinge on the expected relative return of corn versus soybeans, which is largely a function of expected new crop prices. Do new crop futures prices reliably guide producers into the correct production decision? The results suggest that over the entire period of the analysis, futures markets provide only marginal decision- making information to the producer; however, more recent signals do appear to be useful. Further analysis explores several possible factors that could explain why the signals have improved so significantly since 1985.

Suggested Citation

  • Dwight R. Sanders & Philip Garcia & Raymond M. Leuthold, 1998. "The Forecasting Value of New Crop Futures: A Decision-Making Framework," Finance 9805003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:9805003
    Note: Type of Document - pdf; prepared on PC; to print on HP Laserjet; pages: 21; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois at Urbana-Champaign. Working Paper 98-05. For a complete list of OFOR working papers see
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/9805/9805003.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    forecasting efficiency; futures prices; decision making;
    All these keywords.

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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