Analysis of USDA Livestock Price Forecasting Accuracy for Cattle, Hogs, and Broilers
Agricultural markets, compared to other sectors, are typically characterized by uncertainty and high price fluctuations. High price volatility in livestock markets leads to inefficient resource allocation and production planning. Expert price forecasts are not always affordable for all market players, so readily available public forecasts have risen in popularity. This study uses accuracy-based testing methods to evaluate the accuracy of the United States Department of Agriculture (USDA) livestock price forecasting by utilizing the World Agricultural Supply and Demand Estimates (WASDE) quarterly data for slaughter cattle, hogs, and broilers. The study also employs a vector error correction (VEC) model to compare USDA price forecasts. Results suggest that the USDA forecast was more accurate than the competing VEC model across three sectors, suggested by low RMSE and MAE. The beta efficiency test results showed that USDA price forecasts were efficient for all three price series, whereas VEC forecasts were biased for hogs and broiler prices. The findings of the study also confirm that USDA price forecasts are biased for cattle prices with a tendency to repeat past forecast error in all three markets. Results from the forecast encompassing tests showed that USDA cattle and broiler forecasts captured the information contained in VEC forecasts. However, because the hog prices did not show any improvement over time, there is room for improvement of the USDA price forecasts. Overall, results suggest that USDA price forecasts for slaughter cattle, hogs and broilers provide useful information to the market. However, the results also indicate that USDA price forecasts reduce forecast error by economically significant levels.
KEYWORDS: Forecasting, Forecast efficiency, Livestock prices, Time series models