Chapter 7

Chapter 7 - 1 Forecasting The Value of Forecasting...

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Unformatted text preview: 1 Forecasting The Value of Forecasting Forecasting future business conditions and consumer preferences is vital to the firms ability to achieve its purpose and objective because: because: Forecasting helps a business place itself in the best possible position relative to future business conditions Forecasting reduces the uncertainty surrounding business decisions and increases profits Forecast Basics Forecasts of future levels of major economic variables { Examples: GDP, interest rates, income, consumption rates, and so on are easy to find. Become valuable to an agribusiness if related { Firms sales { Profits { Costs { and so on. 2 5 Forecasting Factors 1. Accuracy desired 2. Time permitted to develop forecast 3 Complexity of situation 3. Complexity of situation 4. Time period projected 5. Amount of resources available (e.g., money, personnel) Sources of Forecasts Government Agencies -- Federal, State, Universities -- generally a wealth of information is available from a number of federal, state and local government agencies. Agricultural Research Service -- What are trends in agriculture in area Types of Data Cross Sectional Data -- Data from different groups or locations reflecting observations collected at the same point in time. { normally involves several variables at a particular point in time -- consumption data maybe on seafood Time Series Data -- Data from one or more groups or locations reflecting observations collect over a period of time. { good example includes price series data or interest rate data 3 Forecasting Procedures Extrapolation: forecasting using idea that whatever happened in past will happen again in future. Forecasting Procedures Graphical analysis: extrapolation is combined graphical analysis with plotting of data. (See figure 7-1) Farm-level Price of Corn per Bushel Figure 7-1 Farm-level Price of Corn per Bushel 4 Inflation represents an increase in the price level of all goods. 1. True 2. False T ru e F a lse 0% 0% 5 Inflation Adjusting Deflate or remove effect of inflation from price Graphical analysis: extrapolation is combined with graphical analysis with plotting of data. (See figure 7-1) Per Bushel Corn Prices, Index of Prices Received by Farmers, Estimated Real Prices, and 12 Month Moving Ave. Price INDEX ADJUSTED MOVING MONTH PRICE/BU RECEIVED PRICE AVERAGE 1997 DEC 2.52 112 2.25 1998 JAN 2.56 103 2.49 FEB 2.55 110 2.32 MAR 2.55 112 2.28 APR 2.41 116 2.08 MAY 2.34 113 2.07 2.091467 JUN 2.28 107 2.13 2.070634 JLY 2.19 107 2.05 2.038684 AUG 1.89 104 1.82 2.018061 SEPT 1.84 101 1.82 1.999996 OCT 1.91 100 1.91 1.988768 NOV 1.93 102 1.89 1.978784 DEC 2 100 2.00 1.967038 1999 JAN 2.06 98 2.10 1.950733 FEB 2.05 99 2.07 1.949634 MAR 2.06 100 2.06 1.952961 APR 2.04 105 1.94 1.955672 Source: NASS, USDA Monthly Per Bushel Price of Corn, December 1997 to December 2001 6 Monthly Per Bushel Price of Corn and Adjusted Price of Corn (1990-1992=100) December 1997 to December 2001 2 2.52....
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This note was uploaded on 11/03/2009 for the course AGEC 1003 taught by Professor Detre during the Fall '09 term at LSU.

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Chapter 7 - 1 Forecasting The Value of Forecasting...

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