A Reappraisal of the Forecasting Performance of Corn and Soybean New Crop Futures
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Date
1996-04
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Publisher
Ohio State University. Department of Agricultural, Environmental, and Development Economics
Abstract
This analysis evaluates the forecasting ability of the December corn futures contract and November soybean futures contracts during the previous spring. A regression equation is estimated which accounts for the well-known non-stationarity of commodity prices over the period 1952-1995. Results of this regression imply that the spring-time quotes of the corn and soybean harvest futures contracts are unbiased estimates of the prices at harvest. In addition, since 1974 the spring-time quotes are able to significantly predict the harvest time quotes. This finding implies that farmers and others can use harvest futures at planting as a source of information concerning prices at harvest. Furthermore, in accordance with Stein, because the futures contracts are unbiased forecasts of realized prices, then the corn and soybean futures markets are functioning well in the sense that only unavoidable social loss exits. Magnitude of the unavoidable loss is measured by R2. R2 increased for corn but decreased for soybeans between 1952-72 and 1974-95. These findings suggest that unavoidable social loss has decreased in the corn market, but has increased in the soybean market. Last, since 1973, the spring quotes of the corn and soybean harvest futures were significantly less variable from year-to-year than the eventual harvest prices. This finding suggests that hedging expected corn and soybean production at planting can significantly reduce year-to-year variability in price received at harvest.