Outlook vs. Futures: Three Decades of Evidence in Hog and Cattle Markets

The purpose of this paper is to provide a comprehensive evaluation of the accuracy of outlook forecasts relative to futures prices in hog and cattle markets. Published forecasts from four prominent livestock outlook programs are available for analysis. Most of the series begin in the mid- to late-1970s and end in 2006. Root mean squared error (RMSE) comparisons indicate, with one exception, no meaningful differences in forecast accuracy between outlook forecasts and futures prices. The null hypothesis that futures prices encompass outlook forecasts is rejected in 9 of 11 cases for hogs and 7 of 8 cases for cattle, clearly indicating that outlook forecasts provide incremental information not contained in futures prices. The magnitude of decline in RMSE from combining outlook forecasts and futures prices is non-trivial in almost all cases. The reduction in RMSE for composite forecasts averages -6.3% and -9.0% in hogs and cattle, respectively. Overall, the results of this study provide compelling evidence of the substantial economic value of public outlook programs in cattle and hogs.