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 outlookforecasts relative to futures prices in hog and cattle markets. Published forecasts from fourprominent livestock outlook programs are available for analysis. Most of the series begin in themid- 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 forecastsand futures prices. The null hypothesis that futures prices encompass outlook forecasts isrejected in 9 of 11 cases for hogs and 7 of 8 cases for cattle, clearly indicating that outlookforecasts provide incremental information not contained in futures prices. The magnitude ofdecline in RMSE from combining outlook forecasts and futures prices is non-trivial in almost allcases. The reduction in RMSE for composite forecasts averages -6.3% and -9.0% in hogs andcattle, respectively. Overall, the results of this study provide compelling evidence of thesubstantial economic value of public outlook programs in cattle and hogs.