Agricultural Producer Price Expectations

Abstract

Producer price expectations underlie much of agricultural supply analysis. While producer price expectations would ideally be discovered experimentally, this is too costly. Instead, producer price expectations are usually represented in agricultural supply analysis by easily obtained hypothesized expectation formulations. In most cases, the hypothesized expectation formulations are finctions of past prices. However, other formulations are sometimes used, such as current cash and fitures prices, or initial payments in the case of grains marketed by the Canadian Wheat Board. This paper compares actual producer price expectations with a variety of hypothesized expectation formulations for wheat ana' canola in Saskatchewan. A test developed by Granger is used to determine the proxy models that are signiJicantly dominant. i%e model that dominates as a proxy in the case of wheat price expectations is the two-year declining-weight moving average. The two models that dominate as a proxy in the case of canola price expectations are the first-order autoregressive and, as well, the two-year decliningweight moving average. There is no signi$cant diference between the two models. Somewhat surprising is the pet$ormance of formulations based on futures prices. These formulations perform very poorly in representing producers 'price expectations, even though they are found to be among the most accurate predictors of actual commodity prices. An even more interesting observation is the pe$ormance of the futures price model in the canola market. Even though the November contract in January explains very little of the variation in the actual commodity prices for that year, its error in predicting canola prices is not signtftcantly greater than that of the best performing, the four-year declining-weight moving average, based upon the root mean squared error criterion. Les esperances de prix a la production sous-tendent une bonne partie de l'analyse des foumitures agn'coles. Ces esperances pourraient Ctre identt@es par voie experimentale mais ce serait trop onereux. Plutot, elles sont habituellement representees dans 1 'analyse des fournitures agricoles par des formules facilement accessibles. Dans la plupart des cas, ces formule sont fonction des prix anterieurs. On utilise aussi d'autres for-mules comme les liquidites courantes et les prix a terme ou encore les paiements d 'acompte darts le cas des cereales vendues par 1 'entremise de la Commission canadienne du blk. Nous comparons les esperances reelles de prix a la production avec diverses formules hypothetiques de calcul des esperances relativement au ble et au colza canola en Saskatchewan. Nous avons utilise' le test de Granger pour determiner les modeles de remplacement hypothetiques qui sont signiflcativement dominants. Le modele de remplacement dominant dans le cas des esperances de prti du ble est la moyenne mobile de deux ans a pond&ration regressive. Les deux modeles dominants dans le cas du colza canola sont les esperances autoregressives de premier ordre, ainsi que la moy...

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