We have been working on improving the software system we developed last summer where producers can use farm-specific estimated regression models to forecast their own mailbox price for 12 months from the date of analysis. The most current Class III and IV futures market data are used in the forecasting exercise. This regression model includes farm specific mailbox price as the variable of interest. Announced Class III and IV prices are used as explanatory variables as well as farm specific fat and protein contents (if desired by the producer). The Announced Class III and IV prices are automatically accessed from the Understand Dairy Markets website.
Below are a couple of snapshots of the analysis of average Wisconsin mailbox price based on a regression using data over the Jan, 2005 – Jan, 2016 period as an example. The first figure is used to show the mailbox input form. The 2nd figure is used to show the regression results. Note that components are not included but could be if this data had been updated. The 3rd figure shows the results of our forecast for the April, 2016-Mar 2017 period. (Note that the May Class III and IV prices will be announced later today.) In this figure we show the mailbox point forecasts (red line) as well as the 50% confidence interval (CI) of these forecasts. Note the cone-shaped CI. This CI accounts for the uncertainty due to not only the use of estimated regression coefficients but also the use of futures market data with the characteristic of more uncertainty the further into the future a particular futures price. This summer we hope to have this system extended to be a web-based system where producers can create their own databases of mailbox and component data.
If you or any of your clients are interested in obtaining a copy of this software, feel free to drop me a note. As of this morning we have about 150 dairy farm operators, agricultural lenders and other dairy industry participants using this software system.
Brian W. Gould
Department of Agricultural and Applied Economics and University of Wisconsin-Extension
University of Wisconsin-Madison
427 Lorch St.
Madison, WI 53706