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A Thesis
Presented to the Faculty of the
Allied Business Department
College of Business Administration and Accountancy
De La Salle University-Dasmariñas
Dasmariñas City, Cavite
In partial fulfillment
of the requirements for the degree of
Bachelor of Science in Business Administration
(Major in Economics)
March 3, 2017
2
CHAPTER I
INTRODUCTION
Corn is the second most bountiful crop grown all over the world, and many
people have been consuming this for everyday living. It is a multifaceted crop, and
there is no wasted part on its plant. In Mexico, corn husks are made into their
traditional tamale. Kernels are converted into food. Animals feed on the stalks, and the
corn silks are made into herbal teas. Some food products like corn oil, corn meal, corn
sweetener, corn syrup, and even corn whiskey are made from corn. (Sailer, 2012)
In the United States (US), even if the farmers are capable of growing different
kinds of grains and crops and bringing them to the market, corn accounts for 90 percent
of all the produced grain. In 2015, about 80 million acres of farmland are being planted
with corn, and the world is being supplied with 20 percent of the American corn. While
corn, what remains from these corns is not entirely wasted. Given that corn is the
primary crop grown in the US, every man, woman, and child consumes four pounds of
corn a day, which amounts to a total of more than 1,500 pounds of corn consumed
Even though the US is considered to be the largest exporter of corn in the world,
less than 15 percent share of the demand for the US corn is accounted by the exports,
which is actually small. This occurrence has something to do with the demand-and-
current price. Because of this internationally tough competition, farmers plant their corn
after considering the size of the US crop in order to have a market advantage over the
short US crops. In fact, some countries like Brazil, India, and South Africa had
significant corn exports when international prices are competitive, or the crops are
ERS], 2017)
Husain, 2004)
These studies mentioned above are only a very small portion of numerous
studies done on commodity prices. In the field of economics, this kind of study is not
something new. The efforts of the previous researchers contributed a lot to the present
A study was conducted by Halonen (2016) showing that there are few statistical
techniques that can outperform models that pertain to supply and demand analysis in
forecasting the price of corn in the US. The researcher argued that there are some
econometric techniques that are costly to use, none of them of being more costly than
the supply and demand analysis. The main reason for this much expense is that supply
4
surveys to be distributed to a large sample in a particular study. That being the case, this
study examined if there are some statistical methodologies that can provide forecasts at
least as accurate, or even not as costly as the models incorporating supply and demand
analysis. Both the statistical methodologies and the supply and demand models were
evaluated at one, three, six, nine, and twelve month horizons, given that these horizons
are suitable for analyzing commodities that involve buying, selling, production, and
contract negotiations. It was found out that an AR model is the best model to use in
forecasting over a short horizon, while VAR model is the best model to use in
Another study pertaining to forecasting the price of corn, along with other 14
commodities, has been conducted by Bowman and Husain (2004). The research
spot prices tend to move forward future prices for most commodities in the long run,
and the future prices showing lower variability, it was found out that commodity
futures-based model outperforms both the judgment- and historical price-based models
Aside from the mentioned three different types of commodity price forecasts
above, Jha and Sinha (2013) conducted price forecasting on soybean and rapeseed-
mustard wholesale prices in India using neural network model. The researchers stated
5
that the innovation of Artificial Neural Network (ANN) proved to be feasible given the
data provided by developing countries. In this study, ANN indicated more significant
number of future price changes as compared to linear model. This means that in the
context of commodity price forecasting, where turning points are crucial, ANN model
when the series is linear. Lastly, even if the series is nonlinear, combining linear and
nonlinear models was observed to perform better than these two models performing
independently.
Although there have been many papers done in other countries pertaining to
models used in forecasting the price of corn, not much is done in the Philippines. This
paper will focus on providing an econometric model in forecasting the price of corn in
the Philippines.
trading and price analysis. Commodity prices are often unpredictable that becomes
even highly unpredictable when you factor the presence of natural calamities droughts,
typhoons, floods, and pests. Because of this, there’s a greater risk and uncertainty in
formulating a forecasting methodology. In the case of the Philippines, where rice and
corn are the major crops, policy makers should see to it that they make reliable, highly
accurate forecasts of rice and corn prices in order to ensure food security, thus
somehow alleviating hunger and poverty. Farmers will also benefit from commodity
6
price forecasting because they will definitely want to make their production and
marketing decisions wisely so that they will be able reap positive financial outcomes in
prices over time. A study regarding commodity price forecast resulted in forecast prices
increasing rapidly, and in the long-run becoming larger due to a spike in futures prices.
This resulted to a lower accuracy of the forecasts. It was also mentioned in the study
that in order to improve forecast accuracy, dummy variables may be used to adjust for
price spikes. Technically, it can be observed that there is a need to compare forecasting
models with the other models to ensure that a proper model is used in a proper scenario.
Another study dealt with the problem of short-term market price forecasting.
Time series analysis is usually used in dealing with this problem. Furthermore, ANN, a
new technique, has been discovered as a tool in price forecasting. In this study, ANN
model has been compared with the time series autoregressive integrated moving
average (ARIMA) in forecasting the price of tomato from years 1996 to 2010. The
results showed that ANN model performed better than ARIMA model in terms of their
Corn is second to rice as the most important crop in the Philippines, and yet the
studies done regarding forecasting the price of corn in the Philippines are very few. We
can only see studies done about the pricing behavior of Philippine corn, relationship
between trade liberalization and Philippine corn prices, relationship between the prices
7
of Philippine rice and corn, socio-economic impact of corn in the Philippines, etc.
etc. Like in the other countries, it is important to emphasize methodologies for the
improvement of forecasting of the price of corn in the Philippines in order to aid both
the producers and consumers in making sound decisions. Specifically, this study
1. What is the trend of the price of corn in the Philippines from 1960 to 2016?
Generally, this study aimed to provide a forecast on the price of corn in the
Philippines. In order to carry out the general objective in a more organized and
1. To describe the trend of the price of corn in the Philippines from 1960 to 2016;
2. To analyze the differences between the predictive data and actual data; and
market behavior, price and its factors. Included in these commodities are the three agro-
8
products, namely: channa, wheat and pepper. The main factor that affects the prices of
these crops, in terms of supply and production, is the monsoons. These crops are also
affected by storage constraints that are temporary. Other factors include inflation,
international policies pertaining to imports and exports. Thus, in order to carry out the
and unit root tests, it was found out that commodity prices are generally treated as
stationary. However, unit root tests prove that commodity prices are generally
nonstationary, most especially when the test specification does not account for
structural changes.
The European Central Bank (2014) reported on its July Monthly Bulletin that
commodity prices (oil and food) had an upward trend despite of being interrupted by a
H3: Farmgate prices, rather than wholesale or retail prices, should be the
Okunmadewa (n.d.) explained that despite of the farmers giving their best effort
in producing crops or livestock, they tend to get the least out of it when it comes to
selling the products in the market. This is the same with forecasting the price of the
corn in the Philippines. This paper would like to focus on the farmer’s side, whose
9
efforts are much more rigorous compared to the consumers, rather than the consumer’s
side.
ARIMA Model for forecasting the prices of paddy, ragi, and maize (corn) in India. The
results showed that ARIMA Model is a powerful tool in forecasting commodity prices.
Furthermore, the research checked the validity of the model using the values of MSE,
MAPE, and Theil’s U, and these values indicated that the forecasted values are almost
similar to the actual values. Lastly, one of the limitations of the ARIMA Model is that
the time series should be long, which makes the said model really suitable in
This study compared the performances of both AR model and ARIMA model in
order to determine the model that is flexible enough to the volatility of corn’s prices in
the Philippines.
The government, most especially the policy makers, this impacts their decision
as to how they are going to forecast the price of corn in the Philippines. Given the
better to have many alternative models that could fit the scenario given certain factors.
The farmers are guaranteed to benefit on this study as they will be guided on
what decisions should be made in the future in order to be financially stable. Having a
10
reliable commodity price forecasting method to account for yields will be very helpful.
Though farmers are considered starving and dying in the Philippines, the opportunity to
receive financial incentives in the future is always there for as long as they are willing
to grab it.
The students should be able to learn the value of food security in the long-run as
early as possible. In response to this, through this study, they will learn that commodity
price forecasting is not simply about being able to understand numbers and figures, but
by those figures and numbers, policies can be derived in order to secure food in the
long-run.
This study could be further improved by the future researchers who will be
conducting a research similar to this. The fact that this study only has one variable, it
might be better for the other researchers to come up with models, aside from the
commonly used ARIMA and AR models, which could easily deal with univariate
analysis while also looking into the effectiveness of their performances as well.
This study covered the prices of corn from 80 provinces/cities including Metro
Manila, the same with the provinces/cities covered by the Philippine Statistics
Authority (PSA).
This study is limited only to the data available at PSA as the said organization
has the wholesale, retail, and farmgate prices of corn in the Philippines. This follows
the assumption that the data provided by PSA are all accurate.
11
This study is limited only to the use of two models, AR and ARIMA. This
paper’s main model will be ARIMA while AR will only be a model for comparison.
The data that used in forecasting the price of the corn in the Philippines is only
from 1960 to 2016 because the data from these years are still available and accessible
Definition of Terms
Commodity Price refers to the wholesale, retail, or farmgate price of crops such as rice,
corn, sugar, cassava, vegetables, fruits, and rubber, which could be either
wholesale or retail.
Corn or yellow corn specifically is the second most important crop in the Philippines,
Farmgate Price means the price of corn set by the producer itself. It is also termed as
Forecasting is the method used in this study that uses historical prices of corn in order
to determine the gap between the actual and forecasted values, and to generate
Price refers to the farmgate prices of corn in the Philippines, and is one of the main
CHAPTER II
This chapter discussed some past researches conducted that are related to this
study. This chapter also critically evaluated and analyzed the studies that have been
conducted before, which enabled the researcher to create a foundation for the study.
Through the help of review of related literature, the researcher determined what has
been discussed by the previous studies so far, and what has not yet been discussed that
can serve as a research gap. This chapter focused on the previous researches done on
Sands (2015) stated that fluctuations in commodity prices affect the entire
accumulation. When the prices fluctuate down, the rate of return of commodity sectors
arise whenever economies rely on commodities as the main component of their Gross
Domestic Product (GDP). Because of this, we see a shift from commodity sectors into
exporters all over the world, and it has its own major stocks as well. However, a
13
commodity deflation has been experienced at around April 2015, which forced Brazil’s
majors stocks to give negative returns. The researcher then concluded that in order to
adjust to lower commodity prices, two steps under fiscal policy can be undertaken. First
is for the government to reduce taxes to increase household spending. Last is to handle
both unemployment and the investment cycle by investing in other productive assets.
researcher to analyze how commodity products are likely to impact both the customers
and the whole economy. The researcher further explained that one of the pressing issues
prices such as iron-ore and oil. Basically, the study showed how this scenario would
impact both the global and Australian economies. For the global economy, a fall in oil
prices will have significant implications for oil importers and exporters, consumers and
Countries (OPEC) countries, which rely heavily on oil revenues to fund their
government expenditures, will lose a lot during heavy price decreases of oil. Although
affiliated companies such as energy-mining companies and the like will be negatively
affected, a lot of countries will still benefit. In fact, industries that have higher input
costs on oil will have free cash flows, and will be able to operate at higher margins. As
for the Australian economy, the results showed that the impacts will most likely be seen
growth. The US has a strong economy in terms of agriculture. American farmers are
14
capable of producing vegetables, fruits, grains, meat, and dairy products at a low cost.
As a result of this, domestic food supply becomes safe and secured. Furthermore,
foreign oil. This helps to reduce the costs incurred by the businesspeople and
consumers in purchasing gas or oil. Finally, it is truly important for rural areas and
small towns to have a strong agricultural economy. In fact, farmers and ranchers give
full support to farm industries, and they purchase local goods and services, which
results to an increased production. This high level of production has contributed a lot to
the businesses given that a strong agricultural economy exists. (United States Congress
There has been a vast study regarding both short- and long-term determinants of
commodity prices. Over the years, studies pertaining to this topic become more
prevalent. Good (2008) conducted a study on the factors affecting corn and soybean
prices. The researcher stated that the agricultural commodities have been influenced by
the change of value of US-Dollar which has a negative relationship for both the corn
and soybean prices. Changes in crude oil prices are considered to affect both the corn
and soybean prices negatively. News pertaining to exports also affects both corn and
and soybean included. Another important factor is production as it is highly related with
15
weather. Finally, the developments in the financial markets have positive effect on corn
and soybean prices. Similarly, any weakening of those markets will have a negative
following: (1) stocks that has a negative relationship with price volatility ; (2) Southern
Oscillation Index (SOI) that has a positive relationship with price volatility; (3) world
market structure that has a negative relationship with price volatility; (4) biofuel
production that has a positive relationship with price volatility; (5) Kilian index; (6)
crude oil price behavior that has a positive relationship with price volatility; (7) US-
Dollar exchange rate volatility that has a positive relationship with price volatility; (8)
US interest rate that has a negative relationship with price volatility; (9) the Scalping
index; and (10) the Working-T index. The performances of Generalized Autoregressive
the other model. This analysis was applied and tested for wheat, corn, and soybean.
Adeyanju (2014) argued that corn has been an important food to the entire
human race. However, more than just a food source, corn has also become an important
fuel source. Thus, the researcher enumerated the top factors that either increase or
decrease the price of corn. First is the effect of Ethanol, which comes from corn. Given
that an increase in the demand for ethanol would increase the demand for corn, which
16
will surely increase the price of corn. However, when the demand for ethanol decreases,
decreasing the demand of corn, it is not necessarily equal to the effect of increasing
demand for corn given that only 40 percent of corn becomes ethanol. Another factor is
the crude oil prices which has a positive relationship with corn prices most of the time.
This is because even corn has been functional as an energy commodity as well. Next is
the speculator effect, which is considered to be the biggest driver of corn prices.
Naturally, it will be smart for investors to observe how corn is being valued before
taking any actions. Climate is a very important factor of corn included. Another
important factor, though not as significant as the other factors, is the Chinese effect.
China is said to be taking efforts to have a cleaner energy, therefore there will be an
increase in demand for ethanol, which will most likely contribute to an increase in
demand for corn. Finally, geopolitical issues play an important role in the corn since
using different econometric methods. Most researchers generally use either ARIMA
model, or VAR (Vector Autoregressive) model, for multivariate studies, or AR, for
conducted a study in India regarding rice productivity and production using ARIMA
models. The paper focused on the analysis of trend of rice area, production, and
17
productivity of Odisha as compared to India using data from years 1950 to 2009. It also
focused on forecasting the rice area, production, and productivity using ARIMA
models. It was found out that there is an increasing trend in productivity and production
for both India and Odisha, with Odisha having a lesser rate of increase than India. The
researchers believed that it is because of the low input in agricultural operations and
other biotic and abiotic factors. Overall, it was proved that ARIMA model can be
successfully used to forecast rice area, productivity, and production for both Odisha and
Box-Jenkins ARIMA model was used. The study aimed to fit the Box-Jenkins ARIMA
model in forecasting three of the major fruit crops in Bangladesh namely: Mango,
Banana, and Guava. It was found out that for Mango, the best chosen Box-Jenkins
concluded that given that these three models are capable of practically explaining the
situation, they are the best model to use in forecasting. The researcher further
recommended that these models can be used for decision-making by the researchers,
policymakers, businessmen, etc. Finally, this study concluded that Box-Jenkins ARIMA
various places and periods, other researchers have forecasted commodity prices using
regime-switching models, which this paper will also use in forecasting the price of corn
18
in the Philippines. Ubilava and Helmers (2011) conducted a study regarding the impact
variations and changes in sea surface temperature – on predicting world Cocoa prices.
by considering that a nonlinear causal relationship between ENSO and world Cocoa
prices would be possible to compare the performances between linear and nonlinear
models. The smooth transition autoregressive framework (STAR) model, the model
used by the researchers, and is under the regime-switching models, proved that
models. Furthermore, the study concluded that there exists a Granger causality between
The STAR model was also used in forecasting Corn and Soybean basis using
study, it was stated that producers of corn and soybean in the core production areas in
the US have noticed a great increase in the volatility of prices in their recent years,
aimed to apply regime-switching models to formulate a model that could adjust to the
periods of changing volatilities. The researchers found out over the course of their study
that time series econometrics perform better at short-term forecasting, but difficult to
use in long-term forecasting. Finally, the study concluded that regime-switching models
19
do not provide real forecasting improvement over ARIMA models despite of statistical
This paper focused on forecasting the price of corn in the Philippines. The
previous studies that have been presented in this section clearly explained the need to
forecast commodity prices in various places, as well as how these commodity prices
will have an impact on the economy. Through these past studies done by different
researchers, this paper was able to contribute additional knowledge in commodity price
forecasting by formulating a methodology that will forecast the price of corn in the
Philippines.
20
CHAPTER III
Theoretical Framework
The previous chapters of this study have mentioned some among the numerous
this study, among the most used models by the researchers when dealing with
commodity price forecasting are ARIMA and AR/VAR models. Though not as common
as the previous mentioned two models, there are still a lot of models that can be used in
forecasting commodity prices as they will have their own importance depending on the
scenario.
it does not rely on historical and other statistical data, which means that it can only be
commonly used judgmental forecasting methods, namely: (1) manager’s opinion which
relies on a single manager’s best judgment in forecasting; (2) jury of executive opinion
that is similar to the first one, except now that there is a small group of managers who
combine their best judgments; (3) sales force composite which is often used by the
companies when they want to generate higher sales by hiring sales forces; (4) consumer
determine their responsiveness to the new products or new features of the existing
21
products; and (5) Delphi method which involves a group of experts from various
Unit root model. The unit root problem is demonstrated when the presence of
unit root in a time series affects statistical inferences due to some vague, unpredictable
patterns. The solution provided to this problem is the unit root testing which ensures
that the time series is stationary, that is the statistical properties do not change over
time. Some commonly used unit root tests include, but not limited to, the Dickey Fuller
Test, Augmented Dickey-Fuller (ADF) Test, and Phillips-Perron (PP) Test. The unit
root model with trend and drift is the simplest form of forecasting model, and it can be
written as:
yt = µ + yt-1 + ut,
where yt is the natural logarithm of the commodity price at period t, and the error term,
ARIMA model. The ARIMA model was first introduced by the statisticians
George E.P. Box and Gwilym M. Jenkins and thus being commonly known as Box-
Jenkins model which is used as a forecasting model. This is probably the most
commonly used model in forecasting commodity prices, and is also the most commonly
used model in forecasting other prices given that it can convert non-stationary time
The equation for ARIMA model in a stationary time series analysis is a linear
commodity spot prices. Mckenzie and Holt (1998) and Chinn and Coibion (2010) stated
that the futures price is an unbiased predictor of future spot prices, and there is a little
evidence that it is also the best forecast according to Alquist and Kilian (2010) and
Alquist et al. (2011). Despite of a large literature proving that the capacity of futures
price to forecast exceeds that of the random walk model, the model concerning futures
weekly, monthly, or even yearly. The general futures forecast model is expressed as:
St = α + βFt|t-k + et,
where Ft|t-k is the price for period t with future markets in period t-k.
Vector Autoregressive Model. The VAR Model, which is a simple, yet flexible
model that deals with multivariate time series data, is just a natural extension of the AR
Model, which deals with univariate time series data. Being one of the most commonly
23
used model in forecasting commodity prices, VAR Model is often compared to ARIMA
Model alongside Error Correction Model (ECM) in terms of their effectiveness given
various situations. However, it was also found out that there are times when VAR
Model is preferred over ARIMA Model because there are more theoretical backgrounds
on the former model than the latter. This model was popularized by the American
entitled Macroeconomics and Reality. In that article, Sims demonstrated that VAR
model is able to provide a flexible, better framework in analyzing economic time series
data. Assuming there are three different time series variables, denoted by xt,1, xt,2, and
Conceptual Framework
Mentioned in the hypotheses of the study are the characteristic and trend of the
commodity prices, most especially price of corn. Furthermore, it has been mentioned
the superiority of farmgate prices over wholesale and retail prices, and the importance
of focusing more on ARIMA model than the other models. Figure 1 represents
specifically the model which this study used in forecasting the price of corn in the
Philippines.
Autore
Autore
gressiv
gressiv
ee
Model
Model
Pre
dict
ed
Far
mga
te
Actual Cor
Farmgat n
e Corn Pric
Prices es
Autore
Autoregr
gr
essive
essive
Integrat
Integrat
ed
ed
Moving
Moving
Averag
Averag
ee
Model
Model
De La Salle University – Dasmariñas
CHAPTER IV
METHODOLOGY
Research Design
This study dealt with the quantitative aspect of research. Specifically, this paper
aimed to assess whether what model performs the best in forecasting the price of corn
in the Philippines. The models included ARIMA model and AR model. This study used
the historical design of research. The historical design of research enabled the
researches to gather and synthesize past data in order to accept or reject a hypothesis –
to prove whether corn prices in the Philippines have an upward or downward trend.
Furthermore, this study is also an evaluative research. This paper also provided
an evaluation and assessment on what model performs the best in forecasting the price
of corn in the Philippines. Since food security is a very serious matter not only in the
Philippines, but in the other countries as well, the forecasting method should be ensured
Sources of Data
This study gathered data from the secondary sources that are available and
accessible to the public online. These data came from government agencies, specifically
the Philippine Statistics Authority (PSA), whose scope includes the gathering price of
the agricultural crops in the Philippines. Aside from PSA, the data also utilized the
study conducted by Power and Intal, Jr. (1990), under the World Bank Comparative
26
Studies, entitled Trade, Exchange Rate, and Agricultural Pricing Policies in the
Philippines.
presented on the objectives of the study. This section mentioned the different statistical
techniques that this study will employ. In the case of historical design, tables and
graphs are used in order to clearly see the trend of prices of corn in the Philippines.
Using these tools enabled the researcher to analyze the patterns displayed in the
historical data gathered, which will led to an intelligent conclusion as to why such
pattern/s occurred.
As to the evaluative design of this study, both the ARIMA and AR models are
utilized for comparison as to what model performs best in forecasting the price of corn
in the Philippines. These two models are suitable to use when a particular study
concerning forecasting has only one variable available. In order to determine the
significance of the overall models of the study, both the coefficient of determination
(R2) and the F-statistic are checked as well. Eviews is used in the estimation procedure.
The ARIMA model, which satisfied the second objective of the study is:
Ŷ = µ + Yt-1
or
where:
t = Time
The AR model, on the other hand, which satisfied the third objective of the
study is:
Ŷ = ϕYt−1 + ut
or
where:
of different models such as mean absolute relative pricing error (MARPE), mean
absolute error (MAE), or root mean squared error (RMSE). This research primarily
focused on using RMSE and Theil’s Inequality Coefficient in checking the average
forecast error of both AR and ARIMA. RMSE is also a suitable measure to use given
that it can only be used for a specific commodity and not for comparison across various
√
n
1
RMSE =
n
∑ ( Si - FCi )2 ,
i =1
28
where Si is the spot price of the commodity, and FCi is the commodity forecast price.
√
n
1
n
∑ e2
i =1
TH = ,
√ √∑
n n
1
n
∑ y + 1n2
ŷ 2
i =1 i =1
where n is the sample size of the study, ŷ is the predicted value of y, and e is the
In the case where both RMSE and Theil’s Inequality Coefficient are not
sufficient to determine which model would perform better, the Mean Absolute
Percentage Error (MAPE) will also be computed. The general formula for MAPE is
expressed as:
n
1
MAPE =
n
∑ || Actual
Actual |
- Forecast |
x 100
i =1
29
CHAPTER V
The first part of this section provided the prices of corn in the Philippines
(farmgate, retail, and wholesale) annually from years 1960 to 2016, which were
farmgate prices of corn in the Philippines, as well as the detailed discussions of those
results. This chapter ended with a decision criteria on which model performed better in
Timmer (2008) conducted a study concerning the causes of high food prices. It
is because of these high food prices that poor consumers are experiencing grave
consequences concerning food security. The study concluded some factors that affect
the food prices depending on the year. In 2004, at least three main factors are found to
be dominant, namely: (1) China’s rapid economic growth and the excess of demand
over supply in India; (2) a constant decline in the value of US dollar; and (3) the
combined high and still rising prices of fuel that were found out to be related to the
In the Philippines, one of the most common agricultural problems is the climate
or weather. During typhoons, the usual scenario is that people expect a price spike in
the agricultural prices due to the damage dealt to the farmlands and its farmers.
30
Contrary to this belief, the Bureau of Agricultural Statistics (BAS) (2013) stated that
prices of rice and corn remained stable in Visayas region during the week when
typhoon Yolanda, one of the strongest typhoons recorded in the world, devastated the
said region.
This is a scenario which is not commonly seen among different countries, and
therefore should not be expected to frequently occur. Padin (2016) reported that the
average farmgate prices of local corn have risen during the recent weeks as El Niño
continues to pester the areas in the Philippines where corn is thriving. Here, the farmers
had a difficult time earning due to the harsh climate, which forced the prices of corn to
increase.
Farmgate Prices. Table 1 shows the farmgate prices of corn in the Philippines
from 1960 to 2016 while Figure 2 is the presentation of these tabulated prices in a
graphical form. Generally, from the graph, the trend is found to be upward, with some
Table 1
Percentage
Year Price change
(in PhP/kg.) (%)
1960 0.17
1961 0.19 11.765
1962 0.18 -5.263
1963 0.23 27.778
1964 0.25 8.696
1965 0.26 4.000
1966 0.28 7.692
1967 0.26 -7.143
1968 0.26 0.000
1969 0.27 3.846
1970 0.33 22.222
1971 0.48 45.455
1972 0.54 12.500
1973 0.56 3.704
1974 0.91 62.500
1975 0.93 2.198
1976 0.94 1.075
1977 0.99 5.319
1978 0.97 -2.020
1979 1.00 3.093
1980 1.16 16.000
1981 1.29 11.207
1982 1.34 3.876
1983 1.39 3.731
1984 2.36 69.784
1985 2.91 23.305
1986 2.70 -7.216
32
Percentage
Year Price change
(in PhP/kg.) (%)
Retail Prices. Table 2 shows the retail prices of corn in the Philippines from
1960 to 2016 while Figure 3 is the presentation of these prices graphically. As shown in
the graph, the prices display an upward trend, with strong price spikes from around
Table 2
Percentage
Year Price change
(in PhP/kg.) (%)
1960 0.29
1961 0.30 3.448
1962 0.30 0.000
1963 0.37 23.333
1964 0.40 8.108
1965 0.45 12.500
1966 0.50 11.111
1967 0.46 -8.000
1968 0.46 0.000
1969 0.46 0.000
1970 0.50 8.696
1971 0.81 62.000
1972 0.82 1.235
1973 0.91 10.976
1974 1.39 52.747
1975 1.53 10.072
1976 1.46 -4.575
1977 1.60 9.589
1978 1.60 0.000
1979 1.67 4.375
1980 1.90 13.772
1981 2.20 15.789
1982 2.24 1.818
1983 2.34 4.464
1984 3.71 58.547
1985 5.11 37.736
1986 4.95 -3.131
1987 5.12 3.434
37
Percentage
Year Price change
(in PhP/kg.) (%)
1989 5.93 14.258
1990 7.05 18.887
1991 6.80 -3.546
1992 8.10 19.118
1993 8.07 -0.370
1994 8.53 5.700
1995 9.79 14.771
1996 10.97 12.053
1997 11.10 1.185
1998 11.66 5.045
1999 11.73 0.600
2000 12.71 8.355
2001 13.41 5.507
2002 13.45 0.298
2003 12.98 -3.494
2004 14.40 10.940
2005 14.30 -0.694
2006 14.65 2.448
2007 15.79 7.782
2008 18.18 15.136
2009 19.90 9.461
2010 19.26 -3.216
2011 19.80 2.804
2012 21.51 8.636
2013 22.04 2.464
2014 20.76 -5.808
2015 20.70 -0.289
2016 20.36 -1.643
38
Wholesale Prices. Table 3 shows the wholesale prices of corn in the Philippines
from 1960 to 2016 while Figure 5 presents the graphical form of these prices. It can be
seen from the graph that there is an upward trend in the prices, with rapid increase from
Table 3
Percentage
Year Price change
(in PhP/kg.) (%)
1960 0.22
1961 0.25 13.636
1962 0.20 -20.000
1963 0.27 35.000
1964 0.28 3.704
1965 0.36 28.571
1966 0.36 0.000
1967 0.33 -8.333
1968 0.33 0.000
1969 0.33 0.000
1970 0.38 15.152
1971 0.64 68.421
1972 0.63 -1.563
1973 0.67 6.349
1974 1.07 59.701
1975 1.16 8.411
1976 1.19 2.586
1977 1.22 2.521
1978 1.23 0.820
1979 1.26 2.439
1980 1.41 11.905
1981 1.59 12.766
1982 1.59 0.000
1983 1.78 11.950
1984 2.92 64.045
1985 3.57 22.260
1986 3.48 -2.521
1987 3.63 4.310
42
Percentage
Year Price change
(in PhP/kg.) (%)
1989 4.47 21.798
1990 4.80 7.383
1991 4.40 -8.333
1992 6.00 36.364
1993 5.60 -6.667
1994 6.20 10.714
1995 7.40 19.355
1996 7.71 4.189
1997 7.63 -1.038
1998 8.32 9.043
1999 8.47 1.803
2000 9.20 8.619
2001 9.43 2.500
2002 8.91 -5.514
2003 8.56 -3.928
2004 10.14 18.458
2005 9.48 -6.509
2006 10.85 14.451
2007 11.44 5.438
2008 13.14 14.860
2009 13.84 5.327
2010 14.41 4.118
2011 15.13 4.997
2012 15.78 4.296
2013 15.93 0.951
2014 14.31 -10.169
2015 15.52 8.456
2016 15.63 0.709
43
Common in the three prices of corn in the Philippines are the upward trends and
their frequent price fluctuations. Theories state that commodity prices are bound to
increase over time due to inflation. Regarding the price fluctuations, it is not just the
frequency of them that matters, it should also be important to consider how high or low
the price increases and decreases are. In a study conducted by Bäckman and Sumelius
(2009), there are numerous factors affecting the price fluctuations of food products
according to various literature reviews. The researchers enumerated some common and
a few uncommon factors considering both the supply and demand factors. Under
demand factors, there are three, namely: (1) energy price, which has a positive
relationship with the demand of agricultural products; (2) population growth, which
exhibits a positive relationship on the demand for agricultural commodities, and is the
least emphasized one among the demand factors; and (3) consumer habits, which
positively affects the demand for meat products, and is defined by the study as the
increased protein intake of the consumers. There are six enumerated supply factors in
the study, namely: (1) input factors, which directly affect the production of agricultural
products; (2) weather, which refers to the natural occurrence that humans cannot
control such as rain, or even floods, typhoons, and the presence of insects in the farm;
(3) climate, which is capable of changing the agricultural production from one place to
supply of goods, that drives increased production; (5) policies and institutions, which
means the unstable policies, rules, and regulations regarding the commodity production,
46
that negatively affects the supply of agricultural foods; and (6) prices, which have a
This part of the chapter presents the models, ARIMA and AR, used in
forecasting the farmgate prices of corn in the Philippines. In the case of ARIMA Model,
variable is found out to have a unit root problem, then differencing will be done, either
once or twice, depending on the weight of the problem. It is then followed out by
For the AR Model, given that this study has only one dependent variable, FPRICE, it’ll
be much easier to determine whether the independent variables are significant enough
to explain the changes in FPRICE. This will be done through estimating an AR Model
using FPRICE, then estimating an Ordinary Least Squares (OLS) Model using the
changes in FPRICE. If the independent variables are found to be significant, then the
study covers Table 4 and Figure 5. Here the readers are presented with table/s and
graph/s to inform the readers regarding the significance, and the forecast performance
Table 4
47
Equation Output
This equation output shows the overall performance of the model. The
dependent variable FPRICE was found to have a unit root problem, so in order to
eliminate the said problem, FPRICE was differenced once. The independent variables
AR(1), AR(2), MA(1), and MA(2) have p-statistics values of less than 5%, which make
them significant to explain the changes in the dependent variable D(FPRICE). Overall,
the model is good given the F-statistic value. Also, the model is not spurious because
48
14
12
10
0
60 65 70 75 80 85 90 95 00 05 10 15
FPRICE FPRICE_ARIMA
It can be seen from the graph the comparison between the actual values of the
farmgate corn prices and forecasted values of the farmgate corn prices. There exists a
considerable gap between the actual value and the forecasted value. The actual values
exhibited a consistent upward trend, coupled with some price fluctuations, which
indicate that in the long-run there is a high probability for the farmers to earn profit
50
from producing corn due to a number of factors such as good weather, advanced
technology, and positive expectations. On the contrary, the forecasted values exhibited a
rather odd, increasing movement of prices, without price fluctuations. For the
forecasted values, this assumes that in the long-run, regardless of the changes in the
other factors present, the farmers of corn will earn high if they decide to produce more
corn. It is rather unrealistic because theories claim that there is an obvious trend of
commodity prices, which can be upward or downward, coupled with price fluctuations.
This portion presents with some evidences via tables and graph that show the forecast
Table 5
FPRICE
FPRICE(-1) 0.698025
51
(0.13270)
[ 5.26031]
FPRICE(-2) 0.323340
(0.13613)
[ 2.37523]
C 0.187513
(0.11130)
[ 1.68468]
R-squared 0.982361
Adj. R-squared 0.981683
Sum sq. resids 16.09511
S.E. equation 0.556346
F-statistic 1448.032
Log likelihood -44.24913
Akaike AIC 1.718150
Schwarz SC 1.827641
Mean dependent 4.564000
S.D. dependent 4.110710
With 2 lags set as the optimum number of lags, an AR equation has been
variable, with 3 coefficients in this model. So far, judging from the R-squared and
52
F-statistic, the model’s overall performance is good. Therefore, the farmers can
rely on this model when making their decisions regarding the production of corn.
Table 6
System: UNTITLED
Estimation Method: Least Squares
Date: 12/07/17 Time: 11:17
Sample: 1962 2016
Included observations: 55
Total system (balanced) observations 55
Adjusted R-
squared 0.981683 S.D. dependent var 4.110710
S.E. of regression 0.556346 Sum squared resid 16.09511
Durbin-Watson stat 2.046628
shown by the 2 lags set. Even if Table 5 has shown that the overall performance is
good, it will still not be enough is the independent variables are insignificant. To
check whether the independent variables are significant or not, we need to determine
the p-statistics first. If the value of p-statistics is less than 5%, then the variable is
significant, otherwise it is insignificant. The table above shows that the value of p-
statistics of the independent variables, FPRICE(-1) and FPRICE(-2), are 0.00% and
14
12
10
0
60 65 70 75 80 85 90 95 00 05 10 15
FPRICE FPRICE_AR
The graph above shows that both the actual and forecasted values exhibit
upward trends. The obvious difference is that the actual values have a lot of price
fluctuations, while the forecasted values have very minimal price fluctuations. This
only suggests that in the long-run, there is a very high probability for the corn farmers
56
to enjoy large profit if they were to decide to produce more corn in the future.
Although, this is a very good trend that most farmers would like to experience, it is also
This is the last part of this section where the researcher conducts an evaluation
mentioned in Chapter IV, the basis of this study in determining the best model is the
RMSE and Theil’s Inequality Coefficient. Table 9, and Figures 9 and 10 both fall under
this category.
57
14
12
10
0
60 65 70 75 80 85 90 95 00 05 10 15
FPRICE_ARIMA
FPRICE_AR
FPRICE
of ARIMA and AR models. Here, the readers can clearly see that despite of the
closeness of the forecasted values to the actual values, may it be in tables or graphs, it is
not sufficient enough to determine which model performs the best. This is exactly why
58
there are measures of forecast accuracy, to accurately describe the performance of the
280
Forecast: ARIMA
240 Actual: FPRICE
Forecast sample: 1960 2016
200 Adjusted sample: 1963 2016
Included observations: 54
160 Root Mean Squared Error 2.434099
Mean Absolute Error 1.887942
120 Mean Abs. Percent Error 38.96001
Theil Inequality Coefficient 0.238709
80 Bias Proportion 0.599870
Variance Proportion 0.218941
40 Covariance Proportion 0.181188
0
65 70 75 80 85 90 95 00 05 10 15
ARIMA ± 2 S.E.
Table 7
Forecast Evaluation
60
Both Figure 7 and Table 7 show the evaluation of the 2 forecasting models
used in this study. When using the Root Mean Squared Error, the lower the value, the
better the performance of the model. In the case of Theil’s Inequality Coefficient, if
the value is 1, the forecasting model is called perfectly fit, which means that the
actual and forecasted values are the same. If the value is 0, then the predictive power
of the forecasting model is at its worst. Given that those 2 values are almost never
seen in real life situation, there exist values in between 0 and 1. The closer the value
is to 0, the better the performance of the forecasting model. The ARIMA model has an
RMSE value of 2.434, while the AR model has 1.505. On the basis of RMSE, clearly,
the AR model performed better. Regarding Theil’s Inequality Coefficient, the ARIMA
model performed better given its value of 0.239, as opposed to the AR model’s value
of 0.116. In this case, where both RMSE and Theil’s Inequality Coefficient cannot
61
determine which model performs better, it is important to take a look at the value of
MAPE as well. The ARIMA model’s MAPE value is 38.96%, while the AR model’s
MAPE value is 38.44%. The lesser the value of MAPE, the lesser the size error of the
forecasting model, which means that the model performs better. Therefore, in this
study, the best model to use in forecasting the farmgate prices of corn in the
CHAPTER VI
Summary
62
The research was primarily concerned in determining the model that would best
forecast the farmgate prices of corn, from 1960 to 2016, in the Philippines. Given the
wide range of forecasting models available, the researcher decided to compare the
motivation for this study is the fact that the corn is second most important crop in the
Philippines and almost no studies were made regarding forecasting the price of the said
commodity. Without the imported goods from abroad, the Filipinos would turn to the
appetizers such as Filipino bread, corn, and mashed potatoes. Of course, the decrease in
demand for corns will strongly affect the producers. Thus, this study was made to
somehow help the producers in their future decisions. Both historical and evaluative
methods were used in this study, which covered the years 1960 to 2016.
Tables 1 to 3 showed the trend of the prices of corn in the Philippines (farmgate,
retail, and wholesale) from years 1960 to 2015. It was found out that regardless of the
varying price fluctuations, all these 3 kinds of prices exhibit a continuous upward trend,
which led to an assumption that in the long-run, prices of corn will further increase
Before estimating the equations, it is necessary first to check whether the overall
model performs good, and whether the variables are significant or not. In the case of
not. Checking this would determine whether the variable should be differenced once,
twice, or not differenced at all. Overall, it was needed to convert the prices into log
form, and to difference the dependent variable once. After the ARIMA model, the AR
63
model was estimated first, and looking at the R-squared and F-statistic, the overall
model is good. Next, an OLS regression is estimated to find out whether the
to explain the changes in the dependent variable, FPRICE, and it turned out that the p-
statistics of the 2 independent variables are both less than 5%, which means that the
independent variables are significant enough. From there, a forecasting model based on
AR can be estimated.
Conclusions
ARIMA and VAR models, and determine whether which of these models performs
better in forecasting the farmgate prices of corn in the Philippines. The results show
that given the values of R-squared and F-statistic, both models are good overall, and
that both models have significant variables. This is to be expected given that the
corn, due to inflation which is experienced by any country. Both models are also non-
spurious because their R-squared values exceed their Durbin-Watson statistic values.
The deciding factor of these two models is when their RMSE and Theil’s Inequality
Coefficient Values are checked. When looking into the RMSE, when the value is lower,
it means that the predictive capacity of a forecasting model is better. On the other hand,
Theil’s Inequality Coefficient might exhibit 3 kinds of values, namely: (1) 0, where the
forecast model’s predictive power is at its worst; (2) 1 (perfectly fit), where the actual
64
and forecasted values are the same; and (3) in between 0 and 1, wherein the predictive
power of the forecasting model becomes better as the value approaches near 1. The
results showed that the RMSE value of AR Model is lower than that of ARIMA
Model’s, and the latter model’s Theil’s Inequality Coefficient value is closer to 1 than
the latter model. Because of this result, there exists a need to check the value of MAPE
as well. The lesser the value of MAPE, the better the performance of the forecasting
model becomes. In this study, the AR model’s MAPE value is lesser than that of
ARIMA model’s, which means that the AR model is the best model in forecasting the
Recommendations
The research was able to show clearly that the AR Model is better than the
ARIMA Model. However, some things have to be taken into consideration. First, there
is only one variable used in this study, and that is the price of corn itself. This means
that this study assumed that corn prices can be assumed, ceteris paribus. For the future
researchers, they are recommended to find other variables that might be useful in
forecasting corn prices. That will make this study much more realistic when other
factors will be included that will greatly make or break the performance of the
forecasting model.
For the Philippine government, it is recommended that they pay attention to the
importance of forecasting the corn prices in the Philippines. This will be very helpful in
ensuring the security of corn farmers in the future. The preservation of the farmers is
65
the preservation of the commodity itself. The majority of the Filipinos, especially the
adults, know the nutritional benefits of corn, as it even surpasses the health benefits of
rice. Given that the Philippine government have pointed out the importance of ensuring
the agricultural stability of a nation, it is recommended for them to put more emphasis
This study is only limited to the corn prices. The future researchers, and the
government as well are recommended to gather the data of corn prices to the
neighboring ASEAN countries for a more comprehensive study. That study will not
only benefit the Filipino people, but also those neighboring ASEAN countries.
This study forecasted the annual corn prices in the Philippines from 1960 to
2016. The future researchers are recommended to improve this study by setting the time
frame to quarterly, semi-annually, or even monthly. It will make this study more
comprehensive, and much closer to real-time events, as the researchers will be able to
carefully analyze what causes the price fluctuations given the present factors.
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