PRICE FORECASTING OF HIGH VALUE

COMMERCIAL CROPS ( HVCC ) FOR

THE GMA-HVCC PROGRAMME
Danilo L. Evangelista
Project Leader
Alicia O. Evangelista
Research Associate
Dr Rene Rafael Espino
Antonio Jesus Quilloy
Consultants
TERMINAL REPORT PRESENTATION
• OUTLINE OF REPORT
• Significance of the study
• Objectives of the study
• Conceptual framework
• Research methodology
• ARIMA modeling results
• Price forecasting
• Output
 SIGNIFICANCE OF THE STUDY
• Provide price forecast to farmers, marketing
agents, government planners and
policymakers
 OBJECTIVES OF THE STUDY
• 1. To obtain the best price forecasting model
• 2. To provide farmers and marketing agents
forecast prices to assist them in their
production and marketing decisions
 Conceptual Framework
In developing the framework for this study, we
assume that the farmer seeks to maximize his
profits. Moreover, his production function is
and the prices of the input and output are
and respectively. Mathematically, his
production function is:
Where: x is the single variable input. Marginal
product is given by f’(x).
The objective function can be formulated as
shown below.
Assumption: producer/farmer is a perfect
competitor in both commodity and factor
markets and the prices of input and output are
and respectively.
The objective function is:
Maximize
The profit maximizing equilibrium condition
equates the marginal product to the
Input-output price ratio:
Or equate marginal value product to :

Therefore, the farmer will employ units of a

variable input until the point is reached where
the value of the marginal product of the input
exactly equal to the input price. The optimal
level of input is denoted by
These are shown in Figure 1 ( a to d).

(a)
 (b)
is determined on the assumption that the
farmer knows what and are.
Let us examine what happens to profits if the
farmer believes the price of the output is greater
or less than the actual price. The farmer is
optimistic about . That is holding
constant. The farmer will use more than the
optimal level and incurs losses. The net effect
will be reduction in profits.
(c)
Pessimistic Scenario :

(b)
Figure 1. Determination of profit maximizing input level.
 ARIMA MODELING

Figure 2 . Stages in the Box-Jenkins iterative approach to model building. (Pankratz).

COFFEE MODELING ILLUSTRATION

Figure 24. Farmgate prices of coffee (robusta), Davao City, 2001-2009.

Figure 25. Correlogram of the original data series.
Figure 26. First difference or transformed series.
Figure 27. Correlogram of the 1st difference.
Table 6. Parameter estimates and various diagnostic statistics for candidate
models, coffee (robusta), Davao City.

ARIMA MODELS
Estimates ARIMA ( 2,1,1) ARIMA (2,1,2) ARIMA (1,1,1)
X(t) = .5449 X(t-1) - X(t) = .2547 X(t-1) - X(t) = - .1568 X(t-1)
.2357 X(t-2) + Z(t) - .9631 X(t-2) + Z(t) - + Z(t) + .2815 Z(t-1)
.4630 Z(t-1) .1587 Z(t-1) + .9975
Z(t-2)
WN Variance 10.24 9.23 10.69

AR Coefficient 1 .5649(.2764) .2547(.0265) -0.1569(0.367)

t computed 2.044 9.611 - 0.427

AR Coefficient 2 -.2357(.0936) - .9631(.0264)

t computed -2.518 -36.481

MA Coefficient 1 -.4630(.2778) -.1587(.0070) 0.2815(0.3461)

t computed -1.67 -22.671 0.813

MA Coefficient 2 .9975(.0070)

t computed 142.5

AIC 561 556 563

BIC 557 551 558

Ljung Box Q stat for 20.03 X2 (20) 13.24 X 2 (20) 28.49 X 2 (20)
the p-value = .4560 p-value=.8667 p-value= 0.983
residuals
Stationarity
This implies that the AR coefficients must satisfy
certain conditions.
AR (1) = 0.2547
AR (2) = -0.9631
To check for stationarity: we must apply the 3
conditions to the estimated AR coefficients;
stationarity conditions apply only to the AR
coefficients.
We find that all three conditions are met, and
hence the model is stationary. Moving average
models are always invertible.
Invertibility
To check the model for invertibility, we must
apply certain condition to the estimated MA
coefficient ; invertibility conditions apply only to
MA coefficients.
Figure 28. Residual plot.
Figure 29. Correlogram of the residuals.
 FORECASTING
Davao

Figure 46. Forecasted prices of coffee robusta, January-December ,2010.

 Table 12. Forecasted prices of coffee (robusta), 10-month period.

Approximate 95 Percent
Prediction Bounds
Step Prediction sqrt(MSE) Lower Upper
1 52.69314 3.03882 46.73716 58.64911
2 52.93209 4.50863 44.09533 61.76885
3 52.25034 5.71349 41.05211 63.44857
4 52.28194 6.58501 39.37556 65.18831
5 53.38199 7.25358 39.16525 67.59874
6 54.06717 7.93189 38.52096 69.61338
7 53.61762 8.66001 36.64432 70.59093
8 53.27861 9.29700 35.05682 71.50040
9 54.06061 9.80076 34.85149 73.26974
10 55.02172 10.28554 34.86242 75.18102
 OUTPUT
• Forecast models were obtained using UBJ modeling
technique for selected vegetables and fruits
- Phase I
Tomato – Davao del Sur
Misamis Oriental
Ampalaya – Pampanga
Nueva Ecija
Tarlac
Marinduque
Ilocos Sur
Eggplant – Nueva Vizcaya
Pampanga
Squash – Cavite
Onion – Ilocos Norte
 OUTPUT
- Phase II
Banana – Mindoro Oriental
Batangas
Isabela
Coffee Robusta – Davao City
Compostela Valley
Carabao Mango - Cebu
• Forecast prices were made for the selected
commodities