Forecasting system
GENERAL
The agricultural and horticultural economic forecasting system is used to anticipate the economic development of Finnish agriculture. The forecasting system is based on the enterprise data from the profitability bookkeeping maintained and developed by Luke. The farm-specific forecast data produced by the system is used not only for calculating average results but also in the aggregate economic forecast for agriculture, as well as in the farm-specific forecast comparison reports of the profitability bookkeeping farms.
CALCULATION PRINCIPLE
The economic forecasting system produces farm-specific forecasts for the profitability bookkeeping farms, considering changes in product and input prices, as well as changes in the levels and types of agricultural subsidies. Weighted economic forecasts by region and type of farming are calculated from the farm-specific forecasts. From the results, it is possible to examine the development of financial statement figures, entrepreneurial income, entrepreneur's profit, and the profitability ratio during the forecast period.
The forecasting system is static regarding the farms' production structure, technology, and physical size, with the exception of changes in crop yields and changes in average milk yields, which are considered in the returns.
The sales revenue forecast is calculated farm-specifically for each product in the data as the product of the price forecast and the yield/output forecast. The price forecast is calculated by multiplying the product's price by the index change. The output forecast is calculated correspondingly by multiplying the output by the index change.
The cost forecast is calculated farm-specifically for each production input in the data as the product of the price forecast and the forecast of the input's usage volume. The price forecast is calculated by multiplying the cost by the price index change of the production input. A volume forecast is generally not used, as usage volumes are impossible to anticipate without more detailed information on changes in the enterprises' production structures.
The agricultural subsidy forecast is calculated farm-specifically for each subsidy type in the data by multiplying the euro amount according to the forecast's baseline data by the change in the unit subsidy. When the actual data on granted subsidies for the forecast year becomes available, the subsidy forecasts are replaced with them. The euro amount for new subsidy types is calculated by multiplying the volume data forming the basis of the subsidy by the value of the unit subsidy.
From the return, cost, and subsidy forecasts, the income statement and balance sheet items, as well as key financial ratios reflecting earnings and profitability, are calculated on a farm-by-farm basis.
Figure 1. Description of the economic forecasting system.
BASELINE DATA
The forecasting model uses the latest dataset from Luke's profitability bookkeeping system as baseline data. The farm-specific baseline data of the forecast includes 100 return variables divided into output and price components, 56 farm return variables describing the use of intermediate products, 92 cost variables divided into volume and price components, 168 agricultural subsidy variables, and 53 variables describing farm characteristics or computational parameters.
The enterprise distribution of the baseline data is described in the 'calculation assumptions of the forecast' (ennusteen laskentaoletukset) report published alongside the forecasts.
Figure 2. Example of the data description in the calculation assumptions report.
ASSUMPTIONS AND DATA SOURCES FOR PRODUCTS AND PRODUCTION INPUTS
Cereals and oilseed crops
The basis for the price development forecast of cereals and oilseed crops are the monthly crop-specific indices of the agricultural producer price index published by Statistics Finland. With the help of the monthly indices, indices for the crop year (September-April) are calculated. Statistics Finland's index time series is extended using regression modelling based on cereal price statistics produced by Luke's Statistical Services, the price monitoring of the Cereal Sector Cooperation Group (Vilja-alan yhteistyöryhmä), cereal futures, and average price data from the profitability bookkeeping data. Experts are also consulted when drafting the price change forecast.
Horticultural crops
The basis for estimating the future price development of horticultural products are the annual crop-specific agricultural producer price indices published by Statistics Finland. The price change for the forecast year is based on figures from the price statistics produced by Kasvistieto up to that point in the year, as well as expert estimates.
Potato
The price development forecast for potatoes is based on the monthly crop-specific agricultural producer price indices published by Statistics Finland. With the help of the monthly indices, indices for the crop year (early potatoes: June-August, food potatoes: September-August) are calculated. Statistics Finland's index time series is extended with the help of potato price statistics produced by Luke's Statistical Services and expert estimates.
Livestock products
The development of the producer price for slaughter animals, milk, and eggs in the forecast year is calculated based on the annual product-specific agricultural producer price indices published by Statistics Finland. Statistics Finland's index time series is extended using the monthly producer price statistics produced by Luke's Statistical Services. Experts are also consulted when drafting the price change forecast.
Interest on capital
The interest forecast for both equity and external capital is based on the annual statistics of the 12-month Euribor rate published by the Bank of Finland. The interest time series is extended to the forecast year using regression modelling based on the monthly 12-month Euribor and the interest data on external capital from the profitability bookkeeping data.
Energy
The basis for the electricity price development forecast is the annual electricity indices of the price index of agricultural inputs published by Statistics Finland. Statistics Finland's index time series is extended with the help of electricity price monitoring statistics produced by the Energy Authority and expert views.
The basis for the fuel price development forecast is the annual fuel indices of the price index of agricultural inputs published by Statistics Finland. Statistics Finland's index time series is extended using regression modelling based on crude oil price statistics from the U.S. Energy Information Administration and crude oil price forecasts produced by the Financial Forecast Center.
Fertilizers
The forecast for fertilizer prices is calculated based on the annual agricultural input price indices by fertilizer type published by Statistics Finland. Statistics Finland's index time series is extended using regression modelling based on monthly statistics of the same indices and average fertilizer price data from the profitability bookkeeping data.
Price changes in the calculation assumptions report
The price change assumptions of the forecast compared to the previous year are described in the calculation assumptions report.
Figure 3. Example of describing price changes in the calculation assumptions report.
ASSUMPTIONS AND DATA SOURCES FOR YIELDS/OUTPUTS Crops
Crop yield change indices for field crops are calculated by ELY Centre as ratios between the forecast's baseline year and the forecast year, based on Luke's crop yield statistics, preliminary crop yield statistics, and utilized agricultural area statistics.
Horticultural crops
Yield change indices for horticultural crops are calculated by ELY Centre as ratios between the forecast's baseline year and the forecast year, based on Luke's horticultural statistics.
Milk
Cow milk production indices are calculated by each ELY Center as ratios between the base year and the forecast year, based on Luke's statistics on milk and dairy products and its statistics on the number of livestock. Half of the change in average yield--calculated as the ratio of the volume of milk produced to the average number of cows--is taken into account in the forecast.
WEIGHTING OF THE FORECAST DATA IN THE CALCULATION OF ECONOMYDOCTOR (TALOUSTOHTORI)'S AVERAGE RESULTS
The weighted forecast averages are calculated in EconomyDoctor using the same principle as the actual profitability bookkeeping results. In this process, a weighting coefficient is produced for each farm in the dataset, the size of which indicates how many corresponding Finnish farms it represents when calculating the average result.
The base population of all Finnish farms formed from the existing Agricultural and Horticultural Enterprise Register (Maatalous- ja puutarhayritysrekisteri) for each year is used as the population for weighting. When this population data does not exist, the structural development forecast produced by the EconomyDoctor structural development forecasting system is used.
PUBLICATION OF FORECASTS
The forecast is published twice a year via media releases, which can be viewed in Luke's current news.
The numerical average results of the forecast are published simultaneously with the media release in the Agriculture and Horticulture service of Luke's EconomyDoctor.
The key data and calculation parameter information for each forecast are published simultaneously with the media release in the calculation assumptions report.
CALCULATION ASSUMPTION
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