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

University of Illinois, Office for Futures and Options Research Working Paper No. 98-05

22 Pages Posted: 28 Sep 1998

See all articles by Dwight R. Sanders

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics

Philip Garcia

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Raymond M. Leuthold

University of Illinois @ Urbana-Champaign

Date Written: May 1998

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.

JEL Classification: Q11, Q13

Suggested Citation

Sanders, Dwight R. and Garcia, Philip and Leuthold, Raymond M., The Forecasting Value of New Crop Futures: A Decision-Making Framework (May 1998). University of Illinois, Office for Futures and Options Research Working Paper No. 98-05. Available at SSRN: https://ssrn.com/abstract=129848 or http://dx.doi.org/10.2139/ssrn.129848

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics ( email )

Carbondale, IL 62901-4515
United States
618-453-1711 (Phone)

Philip Garcia

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
427 Mumford Hall
Urbana, IL 61801
United States
217-333-0644 (Phone)
217-333-5538 (Fax)

Raymond M. Leuthold (Contact Author)

University of Illinois @ Urbana-Champaign ( email )

1301 W. Gregory Drive
326 Mumford Hall
Urbana, IL 61801
United States
217-333-1810 (Phone)
217-333-5538 (Fax)

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