AN EVALUATION OF POINT AND DENSITY FORECASTS FOR SELECTED EU FARM GATE MILK PRICES
2018
Dennis Bergmann | Declan O’Connor | Andreas Thümmel
Fundamental changes to the common agricultural policy (CAP) have led to greater marketorientation which in turn has resulted in sharply increased variability of EU farm gate milkprices and thus farmers’ income. In this market environment reliable forecasts of farm gatemilk prices are extremely important as farmers can make improved decisions with regards tocash flow management and budget preparation. In addition these forecasts may be used insetting fixed priced contracts between dairy farmers and processors thus providing certaintyand reducing risk. In this study both point and density forecasts from various time seriesmodels for farm gate milk prices in Germany, Ireland and for an average EU price series areevaluated using a rolling window framework. Additionally forecasts of the individual modelsare combined using different combination schemes. The results of the out of sample evaluationshow that ARIMA type models perform well on short forecast horizons (1 to 3 month) whilethe structural time series approach performs well on longer forecast horizons (12 month).Finally combining individual forecasts of different models significantly improves the forecastperformance for all forecast horizons.
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