By Matt Dalgleish | Source: USDA, MLA, Steiner, CME, OECD, FAO, Mecardo.
This article is bought to you by SureSeason.
Last week Mecardo unveiled their upgraded lamb price forecasting tool which allows for various supply and demand scenarios to be modelled to determine potential price impacts in the years ahead. This week we give the Eastern Young Cattle Indicator (EYCI) model an overhaul and a test run.
The upgraded EYCI forecast model uses predictor inputs such as the Australian dollar level, beef production ratios between the USA and Australia, beef futures curve prices, climate and feed costs to forecast the annual average EYCI for the next decade.
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Figure 1 demonstrates the model forecast compared to the actual annual EYCI level. The model assumes a slightly drier climate for the 2019 season and an average climate for 2020, which points to an annual average EYCI for the 2019 season of around 490¢/kg cwt. This is 20¢ higher than forecasts released late last year under our previous modelling methodology. Similarly, changes to the production ratios and beef futures curves have seen the 2020 annual average forecast increase from 448¢ under the old model to 536¢ using the upgraded model.
The upgraded EYCI model uses newer modelling techniques, accounts for more data inputs and allows interactive scenario testing, where predictor inputs can be adjusted to test how different circumstances might impact the EYCI.
As an example, we can adjust the climate predictor input to demonstrate the impact of a wetter 2019/20 season, like what we saw during the 2016/17 period (Figure 2). This would place the average annual EYCI at 555¢ for 2019 and 580¢ for 2020.
By the same token, we can also model how a much drier than average climatic scenario that extends from 2019 to 2022 would impact price. This would place the 2019 annual average EYCI forecast at 425¢ and the 2020 forecast at 435¢ (Figure 3).
Read the previous EYCI forecast analysis using the older modelling methodology here.
Key points
* The upgraded EYCI model forecasts an annual average of 490¢ for the 2019 season, an increase of 20¢ from the previous forecasts.
* The 2020 forecast has been revised upward significantly, from 448¢ to 536¢ - assuming a relatively average climatic scenario for that year.
* Much wetter or much drier situations could see the annual average EYCI fluctuate between 425¢ to 580¢ in the coming years.
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What does this mean?
The team at Mecardo aren’t trying to have a bet each way in this analysis, our scenario demonstrated in Figure 1 is the one we think is most likely to eventuate over the next few years.
However, it does demonstrate that a forecast model is only as good as the accuracy of the inputs used to generate the predictions. The benefit of the new modelling tool is that the modelling techniques are upgraded, and more input data is being used, hopefully building more accuracy into the model. The new model can also be adjusted easily and in real time to reflect different scenarios – a feature the previous modelling tool didn’t allow.
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