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# Forecasting by dffhrtcv3

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```									  Chapter 6

Forecasting
The Value of Forecasting
consumer preferences is vital to the firm’s
ability to achieve its purpose and objective
because:
• Forecasting helps a business place itself in
the best possible position relative to future
• Forecasting reduces the uncertainty
increases profits
The Basics
• Forecasts of future levels of major
economic variables: GDP, interest rates,
income, consumption rates, and so on are
easy to find

• These forecasts become valuable to an
agribusiness if they can be related to the
firm’s sales, profits, costs, and so on
The Five Factors
of Forecasting
1.   Accuracy desired
2.   Time permitted to develop the forecast
3.   Complexity of situation
4.   Time period to be projected
5.   Amount of resources available
(e.g., money, personnel)
Forecasting Procedures
   Extrapolation: forecasting by using the idea
that whatever happened in the past will
happen again in the future.
   Graphical analysis: extrapolation is
combined with graphical analysis and the
plotting of data (figure 6-1)
• Deflate or remove the effect of inflation
from the price
• To adjust for inflation is accomplished by
dividing the price by an appropriate general
price index calculated for the same period
(table 6-1 and figure 6-2)
• Remove the impact of changes in
population by measuring sales on a per
person (per capita) basis
• Adjusting for population is done by
dividing sales by population (table 6-2)
Moving Averages
• Moving averages help reduce the impact of
short-term fluctuations in the data by
plotting the average value of several data
points rather than a single one
• Examples: table 6-1, figure 6-3
Identifying
Seasonal Patterns
Seasonal patterns of prices and quantities:
The lowest price at harvest time,
followed by a slow rise each month
throughout the rest of year,
followed by a decline just before the next
harvest.
Identifying
Cyclical Patterns
• Cycles are more prevalent in livestock
(hogs & cattle)
• Changes in livestock production require a
Combining
• Combine several of the forecasting
procedures to make a projection
• Reassemble the parts in order using the
price data from the most current year, the
trend line, and seasonal and cyclical pattern
information
Using Forecasts
• Understanding the assumptions behind the
forecast
• Update forecasts
• Use alternative outcomes
Discussion Topics
1. Discuss why a huge global agribusiness firm such
as Coca-Cola has a greater need for good
forecasting than a local, independent farm supply
store. Which firm is at greater risk to changes in the
market?
2. Explain how forecasting is related to the planning
management function.
3. Explain how an agribusiness knowing next year’s
projected gross domestic product can help it decide
Discussion Topics
4. Discuss the idea that forecasting is too
complicated and expensive for a small
agribusiness to afford. Explain why you agree or
disagree with this statement.
5. Explain why graphical analysis should be a part
of all forecasting efforts. Develop an example
6. Explain why it is important to be able to remove
the effect of inflation, population changes, and
other items from a forecast.
Discussion Topics
7. What is the difference between seasonal and
cyclical patterns? Why are these things more
important to agribusiness than other industries?
8. Discuss how a poultry processor can use a