Final Manuscript - 9th Revision

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De La Salle University – Dasmariñas
FORECASTING THE PRICE OF

CORN IN THE PHILIPPINES
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)
BILLY JULIUS M. GESTIADA
May 2018
1
CHAPTER I
INTRODUCTION
According to the Agricultural Management Assistance (AMA) (2008) and the
Food and Agriculture Organization Corporate Statistical Database (FAOSTAT) (2012),
corn, or Zea mays or maize, belongs to the grass family, which originated in Central
America and belongs to the top three most grown cereal crops all over the world,
together with rice (Oryza sativa) and wheat (Triticum spp.). Its global commercial
production in 2010 reached 844.4 million metric tons, at which the harvested land is
161.9 million hectares.
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. According to Gwirtz and Casal (2014), the two
basic categories applied in converting maize into other goods for human consumption
are dry and wet milling. In the wet milling process, maize is separated into the classes
of starch, protein, oil, and fiber. Once the separation has been done, the products are not
sold outright instead further industrial processing is required. After the said industrial
processes, the four chemical classes can now be sold as sweeteners that are either solid
or liquid. The dry milling process, on the other hand, involves particle size reduction of
maize, which maintains some of the maize germ and fiber. Again, the maize cannot be
sold right away for human consumption, not until some ingredients are further added
and some thermal processes such as boiling, drying, frying, and baking are applied.
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This will enable the finished product, though having its nutritional attributes altered
changed, to be sold for human consumption. Even so, there are various ways of
processing corn across various countries. After all, there are so many finished products
that can be extracted from corn more than anyone can imagine. In fact, Sailer (2012)
stated that corn husks in Mexico 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.
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
it is true that the US is maintaining its current reputation as an international exporter of
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
annually. (NathanF, 2015)
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-
supply-relationship of corn, resulting to the other markets adjusting to the US market’s
current price. Because of this internationally tough competition, farmers plant their corn
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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
large. (United States Department of Agriculture Economic Research Service [USDA
ERS], 2017)
In many countries, particularly the developing ones, commodities still remain a
reliable source of export earnings. Moreover, price movements of these commodities
play a major role on overall macroeconomic performance. Commodity-price forecasts
are essential in formulating and planning macroeconomic policies. (Bowman and
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
knowledge of commodity prices.
Background of the Study
The importance of forecasting commodity prices, corn included, remains a
prevailing issue at present. It is important to take a look at some of the techniques and
methods used by some researchers in forcasting corn prices, and how effective and
accurate these techniques are. 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
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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 and demand analysis involves gathering and summarizing a large
amount of information regarding supply and demand. Furthermore, it also requires
extensive 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 forecasting over a long horizon, over six months.
Another study pertaining to forecasting the price of corn, along with other 14
commodities, has been conducted by Bowman and Husain (2004). The research
analysed the performances of three different types of commodity price forecasts
namely: judgment-based, historical price-based, and commodity futures-based. Since
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
in directional terms, at the very least.

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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
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
might be preferred because it totally outperforms nonlinear models most especially
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.
From the studies mentioned above, it can be observed that there are a lot of
methods and techniques done in commodity price forecasting. The important issues are
the effectiveness and accuracy of these techniques, which are greatly changing over
time. This is the exact reason why the researchers never settle on existing forecasting
models, instead they either formulate their own models or they improve the existing
models that will be enough to account for the present, changing factors.
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.
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Statement of the Problem
Commodity price forecasting is an essential part of any industry involving
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
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
the future. (Jha and Sinha, 2013)
Another problem in conducting a commodity price forecast is the volatility of
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.
(Bowman and Husein, 2004)
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
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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
relative errors. (Li, Xu and Li, 2010)
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
of Philippine rice and corn, socio-economic impact of corn in the Philippines, etc.
Basically, these studies only present behaviors, relationships, performances, impacts,
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
answered the following questions:
1. What is the trend of the monthly farmgate prices of corn in the Philippines from
2007 to 2017?;
2. How do Autoregressive Integrated Moving Average (ARIMA) and AR models
perform in forecasting the price of corn in the Philippines?; and
3. How do the predictive data and actual data differ?
Objectives of the Study

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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
systematic way, the following specific objectives were made:
1. To describe the trend of the monthly farmgate prices of corn in the Philippines from
2007 to 2017;
2. To investigate the performances of ARIMA and AR models in forecasting the price
of corn in the Philippines; and
3. To analyze the differences between the predictive data and actual data.
Hypotheses of the Study
Dash, Solanki and S. (2012) conducted a study in India regarding commodity
market behavior, price and its factors. Included in these commodities are the three agro-
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,
supply constraints, costs of production, foreign exchange holdings, and some
international policies pertaining to imports and exports. Thus, in order to carry out the
study more properly and systematically, the researcher hypothesized that:
H1: There is an existence of either trend or seasonality in the corn prices.
Teucrium Trading, LLC (2015), in one of its articles, stated that there is a
seasonal price patterns in corn. Some of the findings of the study include, but not
limited to, the following, namely: (1) the world’s two largest corn-producing countries,
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the US and China, supplies the biggest quantity of corn for approximately 12 weeks,
starting from mid-September to mid-December; (2) December is the month with the
greatest number of price decreases; and (3) the investors expect great opportunities
from both the US and China given the seasonal pattern of their corn prices.
H2: ARIMA model provides a better fit than AR model in forecasting the price
of corn.
Jadhav, Reddy and Gaddi (2017) conducted a study on the application of
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
forecasting the price of corn in the Philippines.
Significance of the Study
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
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uncontrollable circumstances that could negatively affect the commodity prices, it is
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
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.
Scope and Limitations

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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.
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 2007 to 2017 because the data from these years are still available and accessible
through the data sources of this study.
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,
and is the main subject of this study.
Farmgate Price means the price of corn set by the producer itself. It is also termed as
the producer price.
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.

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Price refers to the farmgate prices of corn in the Philippines.
CHAPTER II
REVIEW OF RELATED LITERATURE
This chapter discussed some past researches conducted that are related to
forecasting the price of corn in the Philippines. It started with the discussion of previous
literature regarding the impact of commodity prices to the economy, thus indicating the
economic impact of this study. This is then followed by the discussion of the factors
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that affect the price increases and decreases of commodities. Finally, presented in this
chapter are the methods of commodity price forecasting done by various researchers in
the past. The related studies done by the researchers in the past enabled the researcher
to assess and analyze the studies that have been conducted before, which created a
foundation for this study. Furthermore, 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.
Impact of Commodity Prices to the Economy
Sands (2015) stated that fluctuations in commodity prices affect the entire
economy in terms of employment, public and private expenditures, and capital
accumulation. When the prices fluctuate down, the rate of return of commodity sectors
exceeds that of the non-commodity sectors. In addition, a lot of economic problems
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
productive non-commodity sectors. Brazil is said to be one of the major commodity
exporters all over the world, and it has its own major stocks as well. However, a
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.
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The case of Pakistan clearly displays the relationship between commodity prices
and employment. Pakistan, which has a moderate amount of oil production, is a country
that relies heavily on oil imports to supply the oil demand most especially by the
industrial sector. Ahmad (2013), in his study about the effect of oil prices on
unemployment, stated that there has been a very few existing literature regarding the
relationship between unemployment and oil process in developing countries. This
proposed a challenge because Pakistan is a developing country which is damaged on
the increasing oil prices. The results indicated that there is a significant relationship
between oil prices and unemployment, but no significant relationship between real
interest rate and unemployment. Furthermore, it is suggested that there is a significant
relationship between real oil prices in Pakistan are significantly related to the real
interest rate. Finally, the study concluded that in the long-run, the oil prices can be used
to forecast unemployment rate and real interest rate.
An Australian economist said that it can be challenging on the part of a
researcher to analyze how commodity products are likely to impact both the customers
and the whole economy. The economist further explained that one of the pressing issues
concerning commodity markets is the dramatic declines in the industrial commodity
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
governments. In this case, Russia and Organization of the Petroleum Exporting
Countries (OPEC) countries, which rely heavily on oil revenues to fund their
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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
in inflation and interest rates in the short-run. (Oster, 2015)
Aside from the industrial sector, an agricultural sector also plays a vital role in
determining a country’s economic development, most especially in developing
countries. Countries such as Liberia and Somalia account agriculture as more than 50%
of GDP. An agricultural sector becomes successful provided that it supports economic
growth. The US has a strong economy in terms of agriculture. American farmers are
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,
through modern technology, the American agriculture sector is capable of producing
biofuels and other sources of alternative energy in order to minimize dependence on
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
Joint Economic Committee [JEC], 2013)

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Determinants of Commodity Prices
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
soybean prices. Weather is an important factor to every agricultural commodity, corn
and soybean included. Another important factor is production as it is highly related with
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
effect on both commodities.
Determinants of commodity prices, which are either short- or long-run in nature,
can also be either microeconomic or macroeconomic. Frankel and Rose (2009),
explained that agricultural and mineral commodities peaked sharply in 2008. The main
causes included the ease in monetary policy due to the low real interest rates, a
speculative bubble which arose from expectations, some risks and uncertainties, and
strong global growth. This sharp spike which happened in 2008 led the researchers in
the study which resulted to the analysis of macroeconomic and microeconomic
determinants of 11 individual commodity prices. The results indicated that although the
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macroeconomic determinants: global GDP, and real interest rate both have a positive
relationship on real commodity prices, the microeconomic determinants: inventory
levels, uncertainty measures, and the spot-futures spread have the strongest effects on
real commodity prices. Additionally, there is an existence of bandwagon effect.
Similar to the study conducted by Good (2008), in a macroeconomic
perspective, the determinants of agricultural commodity price volatility include the
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
Conditional Heteroskedasticity-Mixed-data Sampling (GARCH-MIDAS) and
GARCH(1,1) were compared, which GARCH-MIDAS always performed better than
the other model. This analysis was applied and tested for wheat, corn, and soybean.
(Dönmez and Magrini, 2013)
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
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that an increase in the demand for ethanol would increase the demand for corn, which
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
corn production is unevenly distributed worldwide. Technically, a change in economy
affects corn industries.
Commodity Price Forecasting
There were a lot of researches done on the forecasting of commodity prices
using different econometric methods. Most researchers generally use either ARIMA
model, or VAR (Vector Autoregressive) model, for multivariate studies, or AR, for
univariate studies, in commodity price forecasting. In fact, Tripathi et al. (2014)
conducted a study in India regarding rice productivity and production using ARIMA
19
models. The paper focused on the analysis of trend of rice area, production, and
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
India in the coming years.
In a study pertaining to forecasting major fruit crops productions in Bangladesh,
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
ARIMA model, accounting for more than 5% level of significance, is ARIMA(2,1,3);
for Banana, it is ARIMA(3,1,2); and for Guava, it is ARIMA(1,1,2). The researcher
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
model performs good in short-term forecasting. (Hamjah, 2014)
In addition to the usage of ARIMA model in forecasting commodity prices of
various places and periods, other researchers have forecasted commodity prices using
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regime-switching models, which this paper will also use in forecasting the price of corn
in the Philippines. Ubilava and Helmers (2011) conducted a study regarding the impact
of El Niño Southern Oscillation (ENSO) – a natural phenomenon characterized by wind
variations and changes in sea surface temperature – on predicting world Cocoa prices.
The researchers contributed to the previous knowledge of commodity price forecasting
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
nonlinear models are more reliable in out-of-sample forecasting compared to linear
models. Furthermore, the study concluded that there exists a Granger causality between
ENSO and world Cocoa prices.
The STAR model was also used in forecasting Corn and Soybean basis using
regime-switching models, a study conducted by Sanders and Baker (2012). In this
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,
which resulted to an increase of price risk of producers in decision-making. This paper
aimed to apply regime-switching models to formulate a model that could adjust to the
prices’ changing volatilities, and to provide more accurate forecasts especially in
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
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do not provide real forecasting improvement over ARIMA models despite of statistical
significance in favour of the regime-switching models.
Aside from ARIMA and VAR models, and any other related models, there is yet
another method in forecasting commodity prices that is not commonly used, but
according to the literature, this method has been used a couple of times in various
fields. The artificial neural network (ANN) is one of the useful tools in machine
learning that was once limited to studies pertaining to brain and psychology, but is now
used in variety of topics such as business, education, arts, and many more. Kulkarni and
Haidar (2009) developed a forecasting model for crude oil price on the basis of ANN
and commodity futures prices. Similar to the ARIMA model, there is also an optimal
ANN model structure where a researcher needs to be very careful about. The study
dealt with pre-processing the spot and futures prices into a couple of months in order to
determine the optimal lag. The process resulted to a model with an optimal lag of 13
lags to conduct a short-term forecast of until three days in the future. The forecast
accuracy of this model for the first, second, and third days are 78%, 66%, and 53%,
conclusively. This model is expected to help in the further understanding of crude oil
prices, and to enable the investors to have an effective risk management.
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
22
forecasting by formulating a methodology that will forecast the price of corn in the
Philippines.
CHAPTER III
FRAMEWORKS OF THE STUDY
Theoretical Framework
The previous chapters of this study have mentioned some among the numerous
studies done on commodity price forecasting models. As mentioned in the Chapter II of
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.
Judgmental forecasting. This a forecasting method which relies on a person’s
own judgment of a particular situation. It is naturally expected to be subjective because
it does not rely on historical and other statistical data, which means that it can only be
used on qualitative researches. Hillier, F. S. and Hillier, M. S. (2001) enumerated the
commonly used judgmental forecasting methods, namely: (1) manager’s opinion which
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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
market survey that relies on surveying actual or potential customers in order to
determine their responsiveness to the new products or new features of the existing
products; and (5) Delphi method which involves a group of experts from various
locations independently filling out a series of questionnaires.
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,
ut is assumed to be a white noise.
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
24
commonly used model in forecasting commodity prices specified by the three order
parameters (p, d, q), and is also the most commonly used model in forecasting other
prices given that it can convert non-stationary time series data in to stationary time
series data using differentiation.
The equation for ARIMA model in a stationary time series analysis is a linear
equation, which can be expressed as:
Futures forecast model. The futures price is one way of forecasting 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 prices performs
differently depending on the commodity, whether it is consumed daily, weekly,
monthly, or even yearly. The general futures forecast model is expressed as:
St = α + βFt|t-k + et,
25
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
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
econometrician and macroeconomist Christopher A. Sims (1980) on his journal article
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
xt,3, the VAR model of order 1 is expressed as:
xt,1 = α1 + ϕ11xt-1,1 + ϕ12xt-1,2 + ϕ13xt-1,3 + wt,1
xt,2 = α2 + ϕ21xt-1,1 + ϕ22xt-1,2 + ϕ23xt-1,3 + wt,2
xt,3 = α3 + ϕ31xt-1,1 + ϕ32xt-1,2 + ϕ33xt-1,3 + wt,3 ,
where α is constant, ϕ is the phi coefficient, and wt is the error term.
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
26
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
Actual Far
Farmgat mga
e Corn te
Prices Cor
n
Pric
es
Autore
Autore
gressiv
gressiv
ee
Integrat
Integrat
ed
ed
Moving
Moving
Averag
Averag
ee
Model
Model
Figure 1. Overall framework of the research

27
28
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
that it provides the best, most accurate forecasts as possible.
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.

29
Methods of Data Analysis
This study used some statistical techniques depending on the requirements
presented on the objectives of the study. This section mentioned the different statistical
techniques that this study employed. 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
chosen 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 the case of ARIMA forecasting model, six steps will be followed for a more
comprehensive model, namely: (1) examining the data, where patterns and
irregularities are checked, outliers and missing values are properly filled in, and
converting the prices into logarithmic form to better fir the model; (2) decomposing the
data, wherein the seasonal, trend, and cycle components are removed; (3) stationarity
testing, where the prices are checked whether they have unit root problem or not; (4)
test for autocorrelation and the selection of the best ARIMA model by checking the
autocorrelation function (ACF) and partial ACF (PACF); (5) fitting the selected ARIMA
model; and (6) evaluation of the performance of ARIMA model. (Dalinina, 2017)
30
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
Predicted Value of FPRICE = µ + FPRICEt-1 ,
where:
FPRICE = Farmgate Price of Corn in the Philippines (in PhP/kg.)
t = Time
µ = Constant term, average change over time
The AR model, on the other hand, which satisfied the third objective of the
study is:
Ŷ = ϕYt−1 + ut
or
Predicted Value of FPRICE = ϕFPRICEt−1 + ut ,
where:
ϕ = Phi coefficient (should not be less than 1)
u = Random error at period t
There are various ways of measuring the effectiveness of forecast performances
of different models. Hyndman (2014), in his study on measuring forecast accuracy,
explained three points on why researchers should rely on measures on forecast accuracy
31
in forecasting prices, namely: (1) a model that perfectly fits the actual data does not
necessarily perform well in forecasting; (2) with sufficient number of parameters,
perfect fit can be obtained; and (3) over-fitting the model to a data is not a good idea
because it fails to understand the systematic pattern of the data. Furthermore, he
enumerated various measures of forecast accuracy which the researches can rely on
when forecasting prices. Under scale-dependent errors, the two most commonly used
measures are Mean Absolute Error (MAE), and Root Mean Squared Error (RMSE). In
percentage errors, there is only Mean Absolute Percentage Error (MAPE). Lastly, under
scaled errors, there is only Mean Absolute Squared Error (MASE).
There was a study conducted by Hyndman and Koehler (2005) regarding a
closer look at the measures of forecast accuracy. It was mentioned in the study that the
Theil’s Inequality Coefficient or Theil’s U Statistic is also a good measure of forecast
accuracy that is commonly cited in literature reviews.
This research primarily focused on using RMSE, Theil’s Inequality Coefficient,
and MAPE in checking the forecast errors 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 commodities. MAPE was chosen over MAE because in
some cases, the exact values don’t clearly tell whether the error has significant
difference or not. Thus, percentages are far more trusted than actual values.
The formula for RMSE is written as:
RMSE = √ mean( e 2i ) ,
32
where ei is the forecast error expressed as the difference between the actual and
predicted values in the forecast sample at period i.
The general formula of Theil’s Inequality Coefficient is expressed as:
√
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
equivalence factor, denoting economies of scale.
The general formula for MAPE is written as:

n
1
MAPE =
n
∑ || Actual
Actual |
- Forecast |
x 100
i =1
CHAPTER V
33
RESULTS AND DISCUSSION
The first part of this section provided the monthly farmgate prices of corn in the
Philippines from years 2007 to 2017, which were obtained primarily from PSA. It is
followed by the results of ARIMA and AR models pertaining to their respective forecast
performances in the farmgate prices of corn in the Philippines, as well as the detailed
discussions of those results. Furthermore, this chapter provided a decision criteria on
which model performed better in terms of forecasting the farmgate prices of corn in the
Philippines. The last part of this chapter compared the predictive and actual data using
both the AR and ARIMA models.
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
other commodity prices.
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.
Contrary to this belief, the Bureau of Agricultural Statistics (BAS) (2013) stated that
34
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.
Trend of Farmgate Prices of Corn in the Philippines
Tiffany (2009) conducted a study in the US pertaining to the environmental and
economic impacts of the usage and production of US corn ethanol. In this paper, the
objectives include, but not limited to, the impacts of corn ethanol production to the
farmers’ decision-making, and the relationship of corn ethanol production and the
prices of corn. Wisner (2014) showed the positive relationship of crude oil and corn oil
prices from 2003 to 2014. It led to a conclusion that corn ethanol, being a substitute of
crude oil, also led to an increase in the corn prices. In the Philippines, various factors
are considered when corn prices. Table 1 shows the monthly farmgate prices of corn in
the Philippines from 2007 to 2017 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,
coupled with evident price fluctuations. The upward trend, with some price
35
fluctuations, can be attributed to a lot of factors. Padin (2016) proved that natural
weather, no matter how unlikely the result is, can affect the corn prices in the
Philippines. Juliano and Gonzales (n.d.) mentioned technological advancement and
policies as important factors in the movement of corn prices. With technological
advancements, it becomes much easier for the farmers to produce more corn, and for
them to decide the farmgate price of corn. Furthermore, the study also mentioned that
policies regarding low taxes on fertilizers, and credit at reasonable rates will definitely
enhance corn production.
Table 1
36
Monthly Farmgate Prices of Corn, Philippines, 2007-2017
Year Month Price Percent change

(in PhP/kg.)
2007 January 9.28 -
February 9.62 3.66%
March 10.02 4.16%
April 10.31 2.89%
May 10.65 3.30%
June 10.51 -1.31%
July 10.26 -2.38%
August 10.07 -1.85%
September 9.81 -2.58%
October 9.93 1.22%
November 9.90 -0.30%
December 9.98 0.81%
2008 January 10.24 2.61%
February 10.60 3.52%
March 10.84 2.26%
April 11.04 1.85%
May 10.74 -2.72%
June 11.04 2.79%
July 10.79 -2.26%
August 10.51 -2.59%
October 10.84 3.73%
November 11.28 4.06%
December 11.71 3.81%
2009 January 12.91 10.25%
March 12.38 -8.63%
April 12.07 -2.50%
May 11.51 -4.64%
Continued
…
37

(in PhP/kg.)
June 10.35 -10.08%
July 10.05 -2.90%
August 8.99 -10.55%
October 8.68 2.24%
November 9.49 9.33%
December 9.71 2.32%
2010 January 10.13 4.33%
March 11.40 5.36%
April 11.30 -0.88%
May 11.02 -2.48%
June 11.40 3.45%
July 11.31 -0.79%
August 10.96 -3.09%
October 10.55 1.64%
2011 January 12.55 5.29%
March 12.59 -2.02%
April 11.74 -6.75%
May 11.66 -0.68%
June 11.55 -0.94%
July 11.32 -1.99%
August 10.89 -3.80%
October 11.65 8.57%
Continued
…
38

(in PhP/kg.)
2012 January 13.67 5.07%
February 13.58 -0.66%
March 12.63 -7.00%
April 12.46 -1.35%
May 12.72 2.09%
June 12.46 -2.04%
July 12.32 -1.12%
August 12.14 -1.46%
October 12.28 2.25%
2013 January 12.48 -0.79%
February 11.97 -4.09%
March 11.87 -0.84%
April 11.89 0.17%
May 12.02 1.09%
June 12.08 0.50%
July 11.83 -2.07%
August 11.58 -2.11%
September 11.74 1.38%
October 11.81 0.60%
November 11.75 -0.51%
2014 January 11.97 1.18%
February 11.94 -0.25%
March 12.21 2.26%
April 12.54 2.70%
Continued
…
39

(in PhP/kg.)
May 13.02 3.83%
June 13.42 3.07%
July 13.22 -1.49%
August 13.94 5.45%
October 12.84 -0.85%
November 12.51 -2.57%
December 12.50 -0.08%
2015 January 12.28 -1.76%
March 12.66 2.10%
April 12.67 0.08%
May 12.79 0.95%
June 12.68 -0.86%
July 12.65 -0.24%
August 12.40 -1.98%
October 11.60 -1.86%
November 11.49 -0.95%
December 11.43 -0.52%
2016 January 11.67 2.10%
March 12.60 2.86%
April 12.51 -0.71%
May 12.87 2.88%
June 13.00 1.01%
July 12.98 -0.15%
August 12.48 -3.85%
October 10.96 -5.03%
Continued
…
40

(in PhP/kg.)
November 10.86 -0.91%
2017 January 11.25 2.65%
March 11.41 -0.35%
April 11.41 0.00%
May 11.53 1.05%
June 11.33 -1.73%
July 11.20 -1.15%
August 11.21 0.09%
September 11.43 1.96%
October 11.58 1.31%
Mean 11.60 0.28%
Standard Deviation 1.08 3.65%
Source: Philippine Statistics Authority
41
Figure 2 shows the graphical representation of the monthly farmgate prices of
corn in the Philippines. The highest price, which is 13.94 PhP/kg., occurred on August
2014. The PSA has attributed this to the high corn output on that same year. This good
corn production, which led to high farmgate prices, was caused by the increased use of
good quality seeds. Despite of the high farmgate prices in 2014, there was a downward
trend of prices in 2015 due to the lingering effects of El Niño, as well as the shortage of
water supply due to drought. The lowest price, 8.49 PhP/kg., occurred on September
2009. This is primarily because 2009 was considered the deadliest season in the
Philippines after decades. According to Corpuz (2010), typhoons Ketsana (Ondoy) and
Parma (Pepeng), which both occurred on this year, have devastated a lot of Filipino
homes as well as the entire Philippine agriculture, with its effects remaining until 2011.
Consequently, some price drops in 2010 can be attributed to the occurrence of El Niño.
Though there are a few rare instances where natural calamities don’t necessarily
negatively affect agriculture, this is usually an expected outcome especially to the
farmers.
42
2017
2016
2015
2014
Farmgate Prices of Corn
2013
Ye ar
2012
2011
Figure 2. Farmgate prices of corn in the Philippines
2010
2009
2008
2007
11.00
9.00
8.00
14.00
13.00
12.00
10.00
Farmgate Price (in PhP/kg.)
Theories have stated 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
43
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 another; (4) technological development,
which exhibits a positive relationship on the supply of goods, that drives increased
production; (5) policies and institutions, which means the unstable policies, rules, and
regulations regarding the commodity production, that negatively affects the supply of
agricultural foods; and (6) prices, which have a direct relationship on the supply of
commodities.
Performance of the Forecasting Models

44
This is the second part of this section where the researcher conducts an
evaluation as to what model is better in forecasting the price of corn in the Philippines.
As mentioned in Chapter IV, there will be six steps to be followed under the ARIMA
model. Furthermore, mentioned in the Methodology section, are the bases of this study
in determining the best model, which are the values of MAPE, RMSE, and Theil’s
Inequality Coefficient.
Autoregressive Integrated Moving Average Model
Step 1: Examining the Data
Table 1 and Figure 2 showed the monthly farmgate prices of corn in the
Philippines in tabular and graphical forms, respectively. It can be seen that there are
complete data from 2007 to 2017, without any missing values. Due to the volatility of
prices of corn, outliers are expected to occur, like what is shown above. It is worth
noting some comparisons between the logarithmic form of farmgate prices compared to
its original form. First, the logarithmic prices show that they have been deflated as
compared to the original prices. Second, from the original trend of volatile price prices
with heavy price spikes and drops, it has now become a steady, an almost horizontal
trend with some weaker price spikes and drops. Lastly, the logarithmic form of
farmgate prices has helped in stabilizing the price increases and decreases.
Step 2: Decomposing the Data
Since the prices of corn are gathered monthly, it is now possible to decompose
the logarithmic corn prices in order to eliminate the presence of seasonality, trend, or
cycle. The researcher used the additive model, which is done by subtracting the
45
seasonal component from the original series, in decomposing the entire series. This
resulted in a series having lower prices compared to the original series. Having a de-
seasonalized series means that the seasonal, cycle, and trend components of the series
have been eliminated. The next step required is to determine whether there is a
stationarity problem or not.
Step 3: Stationarity Testing
It is commonly assumed that a time series data is stationary. Stationarity refers
to the statistical properties, such as mean, variance and autocorrelation, which do not
change over time. Table 2 shows the Augmented Dickey-Fuller unit root test on de-
seasonalized logarithmic form of farmgate prices of corn (LFPRICESA) at level. The
results showed a Philips-Perron test statistics probability value of 0.9%, which is less
than 5%. This only means that the null hypothesis can be rejected, and that there is no
stationarity problem in the series.
Table 2
Augmented Dickey-Fuller Testing at Level
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -3.541718 0.0083

Test critical values: 1% level -3.481217
46
5% level -2.883753
10% level -2.578694
*MacKinnon (1996) one-sided p-values.
Null Hypothesis: LFPRICESA has a unit root

Exogenous: Constant
Lag Length: 1 (Automatic - based on SIC, maxlag=12)
Step 4: Autocorrelation Testing and ARIMA Model Selection
Table 3 shows the information on correlogram of LFPRICESA, with 36 lags
included. Given below are the values of autocorrelation (AC), partial autocorrelation
(PAC), Q-statistics and its p-values. AC does three important things, namely: (1) it
shows the correlation of the LFPRICESA values and lags; (2) it determines the
appropriate differencing of the best ARIMA model; and (3) it helps to determine the
order of the MA(q) component of the ARIMA model. Furthermore, the two lines in the
AC plot determine whether the autocorrelation is statistically different from 0 at 5%
significance level. If the AC is within the range of those two lines, then it is not
47
statistically different from 0. On that note, all AC values at orders 1 to 36 are display
high autocorrelation that decays over time. On the other hand, PAC shows the
correlation of LFPRICESA values and its lags that is not explained by the past lags. It
also determines the order of the AR(p) component of the ARIMA model. Additionally,
there are also two lines in the PAC plot that function the same as the two lines in the
AC plot. It can be seen that the PAC value at order 1 displays a high autocorrelation
that cuts down to the next order. The Q-statistics values help determine whether the
values of LFPRICESA have correlation with each other or not. However, it is not easy
to manually choose the best ARIMA model to use given the combination of orders to be
tested.
Table 3
Correlogram of LFPRICESA
48
Date: 05/10/18 Time: 11:45

Sample: 2007M01 2017M12
Included observations: 132
Autocorrelation Partial Correlation AC PAC Q-Stat Prob
1 0.916 0.916 113.26 0.000

2 0.790 -0.301 198.25 0.000
3 0.658 -0.055 257.62 0.000
4 0.530 -0.046 296.44 0.000
5 0.426 0.068 321.76 0.000
6 0.355 0.076 339.45 0.000
7 0.317 0.085 353.67 0.000
8 0.309 0.088 367.31 0.000
9 0.326 0.091 382.64 0.000
10 0.348 0.002 400.24 0.000
11 0.348 -0.114 417.92 0.000
12 0.315 -0.111 432.56 0.000
13 0.269 0.029 443.35 0.000
14 0.224 0.055 450.86 0.000
15 0.194 0.108 456.57 0.000
16 0.189 0.095 462.02 0.000
17 0.195 -0.019 467.86 0.000
18 0.221 0.082 475.46 0.000
19 0.257 0.000 485.83 0.000
20 0.288 -0.028 498.91 0.000
21 0.309 0.025 514.10 0.000
22 0.309 -0.003 529.50 0.000
23 0.282 -0.051 542.40 0.000
24 0.230 -0.074 551.06 0.000
25 0.187 0.102 556.85 0.000
26 0.164 0.059 561.32 0.000
27 0.146 -0.065 564.91 0.000
28 0.153 0.103 568.88 0.000
29 0.177 0.013 574.28 0.000
30 0.202 -0.024 581.36 0.000
31 0.224 -0.002 590.11 0.000
32 0.224 -0.100 598.96 0.000
33 0.208 0.046 606.70 0.000
34 0.164 -0.102 611.58 0.000
35 0.115 0.048 614.01 0.000
36 0.064 -0.081 614.76 0.000
Step 5: Fitting the ARIMA Model

49
Table 4 shows the ARIMA model summary and criteria table for LFPRICESA.
In the criteria table, there are values of log-likelihood (LogL), Akaike Information
Criterion (AIC), Schwarz Criterion (BIC), and the Hannan-Quinn Criterion (HQ).
These three criteria are only used to determine the appropriate number of AR(p) and
MA(q) terms. The criteria table below chose ARIMA Model (3,3)(0,0) as the best
model given the lowest value of AIC, as well as the remaining criteria. This suggests
that the ARIMA Model, with the terms AR(3) and MA(3) without differencing, is the
best model to forecast the price of corn in the Philippines. However, this model will
still undergo further testing to see whether it satisfies the certain conditions to be met in
forecasting.
Table 4
ARIMA Criteria Table and Summary

50
Model LogL AIC* BIC HQ
(3,3)(0,0) 292.026579 -4.303433 -4.128718 -4.232437

(4,2)(0,0) 291.828095 -4.300426 -4.125710 -4.229429
(3,4)(0,0) 292.459581 -4.294842 -4.098287 -4.214971
(4,3)(0,0) 292.287075 -4.292228 -4.095674 -4.212358
(3,2)(0,0) 289.608300 -4.281944 -4.129068 -4.219822
(4,4)(0,0) 292.463764 -4.279754 -4.061360 -4.191009
(2,4)(0,0) 287.438595 -4.233918 -4.059203 -4.162922
(2,0)(0,0) 283.022405 -4.227612 -4.140255 -4.192114
(2,1)(0,0) 283.297938 -4.216635 -4.107438 -4.172263
(3,0)(0,0) 283.286081 -4.216456 -4.107259 -4.172083
(4,1)(0,0) 285.083540 -4.213387 -4.060511 -4.151265
(3,1)(0,0) 283.999839 -4.212119 -4.081082 -4.158872
(4,0)(0,0) 283.352419 -4.202309 -4.071273 -4.149062
(2,2)(0,0) 283.305837 -4.201604 -4.070567 -4.148356
(1,4)(0,0) 284.282916 -4.201256 -4.048380 -4.139135
(2,3)(0,0) 284.093237 -4.198382 -4.045507 -4.136261
(1,3)(0,0) 283.057686 -4.197844 -4.066807 -4.144597
(1,2)(0,0) 281.812034 -4.194122 -4.084925 -4.149749
(1,1)(0,0) 280.017613 -4.182085 -4.094727 -4.146587
(1,0)(0,0) 269.112200 -4.032003 -3.966485 -4.005379
(0,4)(0,0) 267.913519 -3.968387 -3.837350 -3.915139
(0,3)(0,0) 254.651094 -3.782592 -3.673395 -3.738220
(0,2)(0,0) 235.022074 -3.500334 -3.412977 -3.464836
(0,1)(0,0) 196.542821 -2.932467 -2.866949 -2.905843
(0,0)(0,0) 126.106301 -1.880398 -1.836720 -1.862649
Model Selection Criteria Table

Dependent Variable: LFPRICESA
Date: 05/10/18 Time: 12:05
Sample: 2007M01 2017M12
51
Table 5 shows the correlogram table of LFPRICE, after differencing once. As
opposed to the results of Table 3, this table shows that there is no significant
autocorrelation on both the AC and PAC plots, as shown by the values being within the
limit of the two lines in their respective plots. This means that there is no presence of
cuts or decays, and that the values under AC and PAC plots are all statistically the same
with 0 at 5% significance level.

52
Table 5
Correlogram of D(LFPRICESA)
53
Date: 05/10/18 Time: 11:51

Sample: 2007M01 2017M12
Autocorrelation Partial Correlation AC PAC Q-Stat Prob
1 0.397 0.397 21.124 0.000

2 0.153 -0.005 24.304 0.000
3 0.029 -0.036 24.420 0.000
4 -0.125 -0.147 26.551 0.000
5 -0.282 -0.217 37.556 0.000
6 -0.322 -0.157 52.008 0.000
7 -0.261 -0.080 61.571 0.000
8 -0.195 -0.077 66.954 0.000
9 -0.037 0.039 67.144 0.000
10 0.151 0.114 70.424 0.000
11 0.265 0.111 80.630 0.000
12 0.106 -0.173 82.278 0.000
13 0.022 -0.124 82.348 0.000
14 -0.112 -0.201 84.213 0.000
15 -0.203 -0.130 90.420 0.000
16 -0.179 0.019 95.248 0.000
17 -0.127 0.049 97.726 0.000
18 -0.108 -0.029 99.520 0.000
19 0.061 0.101 100.11 0.000
20 0.156 -0.028 103.94 0.000
21 0.225 -0.016 111.96 0.000
22 0.299 0.087 126.28 0.000
23 0.276 0.131 138.53 0.000
24 0.039 -0.092 138.77 0.000
25 -0.129 -0.056 141.50 0.000
26 -0.225 -0.108 149.91 0.000
27 -0.273 -0.100 162.36 0.000
28 -0.251 -0.024 173.00 0.000
29 -0.187 -0.008 178.95 0.000
30 -0.007 0.074 178.96 0.000
31 0.027 -0.046 179.09 0.000
32 0.101 -0.089 180.87 0.000
33 0.269 0.065 193.74 0.000
34 0.178 -0.078 199.45 0.000
35 0.025 -0.036 199.57 0.000
36 -0.101 -0.085 201.45 0.000
Table 6
ARIMA Criteria Table and Summary

54
Model LogL AIC* BIC HQ
(2,3)(0,0) 289.712029 -4.283516 -4.130640 -4.221394

(3,4)(0,0) 291.260057 -4.276668 -4.080113 -4.196797
(2,4)(0,0) 289.787562 -4.269509 -4.094793 -4.198512
(3,3)(0,0) 289.777055 -4.269349 -4.094634 -4.198353
(4,2)(0,0) 289.775437 -4.269325 -4.094610 -4.198329
(4,4)(0,0) 290.940821 -4.256679 -4.038285 -4.167934
(4,3)(0,0) 289.796609 -4.254494 -4.057939 -4.174623
(2,2)(0,0) 284.959874 -4.226665 -4.095628 -4.173418
(2,1)(0,0) 283.656726 -4.222072 -4.112875 -4.177699
(4,1)(0,0) 285.496100 -4.219638 -4.066762 -4.157516
(3,1)(0,0) 284.467090 -4.219198 -4.088162 -4.165951
(3,2)(0,0) 284.961370 -4.211536 -4.058660 -4.149414
(1,4)(0,0) 283.396888 -4.187832 -4.034956 -4.125710
(1,3)(0,0) 282.002414 -4.181855 -4.050818 -4.128608
(1,0)(0,0) 278.842711 -4.179435 -4.113917 -4.152811
(1,2)(0,0) 279.995169 -4.166593 -4.057396 -4.122221
(2,0)(0,0) 278.843181 -4.164291 -4.076933 -4.128792
(1,1)(0,0) 278.843111 -4.164290 -4.076932 -4.128791
(0,2)(0,0) 278.548822 -4.159831 -4.072473 -4.124332
(0,1)(0,0) 277.415747 -4.157814 -4.092296 -4.131191
(4,0)(0,0) 280.357794 -4.156936 -4.025900 -4.103689
(0,3)(0,0) 279.078541 -4.152705 -4.043508 -4.108333
(3,0)(0,0) 278.923165 -4.150351 -4.041154 -4.105978
(0,4)(0,0) 279.408440 -4.142552 -4.011516 -4.089305
(0,0)(0,0) 267.671571 -4.025327 -3.981648 -4.007578
Model Selection Criteria Table

Dependent Variable: D(LFPRICESA)
Date: 05/10/18 Time: 11:58
Sample: 2007M01 2017M12
55
Table 6 showed the ARIMA criteria table for D(LFPRICESA). As previously
shown in Table 5, there is no significant autocorrelation in both the AC and PAC plots.
The ARIMA terms, AR(p) and MA(q), are given the values 2 and 3, respectively. This
means that given the AIC, BIC, and HQ values, the ARIMA model chosen was (2,3)
(0,0). It can be concluded that the ARIMA Model (2,3)(0,0) is the best model in
forecasting the price of corn in the Philippines at first difference.
Step 6: Evaluation of the ARIMA Model
The ARIMA model is expressed as the form ARIMA (p,d,q), where p is the
autoregression order, d is the differencing level, and q is the moving average order.
There are four models that are chosen for comparison based on steps 4 to 5, satisfying
the following conditions, namely: (1) the ARMA model (3,3) using LFPRICESA at
level; (2) the ARMA model (3,3) at first difference; (3) the ARMA model (2,3) using
LFPRICESA at level; and (4) the ARMA model (2,3) using LFPRICESA at first
difference. Figures 3 to 6 show the evaluation of the ARIMA models (3,0,3), (3,1,3),
(2,0,3), and (2,1,3), respectively. The values of RMSE, MAE, MAPE, and AIC were
checked to compare the performances of the four models. The model that displays the
lowest value of the four criteria will be the best ARIMA model. After estimating the
models individually, the next step is proceed directly to forecasting, where the values of
56
RMSE, MAE, and MAPE are shown. Tables 4 and 6 show the AIC values of the four
models. The results show that ARIMA model (3,1,3) is the best ARIMA model for
comparison against AR model in forecasting the price of corn in the Philippines on the
bases of the four mentioned values.

57
2.7
Forecast: A
Actual: LFPRICESA
2.6
Forecast sample: 2007M01 2017M12
Adjusted sample: 2007M03 2017M12
2.5 Included observations: 130
Root Mean Squared Error 0.084588
2.4 Mean Absolute Error 0.067504
Mean Abs. Percent Error 2.757657
2.3
Theil Inequality Coefficient 0.017317
Bias Proportion 0.042072
Variance Proportion 0.522860
2.2
Covariance Proportion 0.435068
2.1
07 08 09 10 11 12 13 14 15 16 17
A ± 2 S.E.
Figure 3. Forecast evaluation graph ARIMA model (2,0,3)

58
.08
Forecast: B
.06 Actual: D(LFPRICESA)
.04
.02
.00 Mean Absolute Error 0.022025
-.02 Theil Inequality Coefficient 0.806206
-.04
-.06 Covariance Proportion 0.202280
-.08
07 08 09 10 11 12 13 14 15 16 17
B ± 2 S.E.

59
2.7
Forecast: CC
Actual: LFPRICESA
2.6
2.5 Included observations: 129
2.4 Mean Absolute Error 0.064124
2.3
Theil Inequality Coefficient 0.016524
2.2
Covariance Proportion 0.300185
2.1
07 08 09 10 11 12 13 14 15 16 17
CC ± 2 S.E.

60
.08
Forecast: DD
.06 Actual: D(LFPRICESA)
.04
.02
.00 Mean Absolute Error 0.021480
-.02 Theil Inequality Coefficient 0.772748
-.04
-.06 Covariance Proportion 0.241850
-.08
07 08 09 10 11 12 13 14 15 16 17
DD ± 2 S.E.

61
Autoregressive Model
Table 7
Autoregression Estimates
LFPRICESA
LFPRICESA(-1) 1.329899
(0.07990)
[ 16.6437]
LFPRICESA(-2) -0.425318
(0.07803)
[-5.45061]
C 0.234847
(0.06597)
[ 3.55966]
R-squared 0.904805
Adj. R-squared 0.903306
Sum sq. resids 0.098570
S.E. equation 0.027859
F-statistic 603.5534
Log likelihood 282.5321
Akaike AIC -4.300495
Schwarz SC -4.234321
Mean dependent 2.450104
S.D. dependent 0.089592
Vector Autoregression Estimates

Date: 05/10/18 Time: 12:51
Sample (adjusted): 2007M03 2017M12
Included observations: 130 after adjustments
Standard errors in ( ) & t-statistics in [ ]
62
The Autoregression estimates above showed the summary of the estimated AR
model. The right-hand side of the variable, LFPRICESA, shows the values of
coefficient, standard errors, and t-statistics. From here, there are four things that can be
concluded, namely: (1) the coefficient value of LFPRICESA at lag one of 1.329899
means that an increase of one percent in LFPRICESA(-1) will lead to an increase in the
value of LFPRICESA by 1.329899%; (2) likewise, the coefficient value of
LFPRICESA at lag two of -0.425318 means that as LFPRICESA(-2) increases by one
percent, LFPRICESA decreases by 0.425318%; (3) the standard errors calculate the
statistical reliability of the estimated coefficients, which means that the larger the value
of the standard errors, the greater the problem is observed in the estimates; and (4) to
interpret the t-statistic values, which is the coefficient value divided by the standard
error value, it is important to take a look at the value of probability of t-statistics.
With 2 lags set as the optimum number of lags, an AR equation has been
estimated using LFPRICESA. There are 2 independent variables, 1 independent
variable, with 3 coefficients in this model. So far, judging from the R-squared and F-
statistic, the model’s overall performance is good. However, as mentioned above, not
enough information is shown whether the independent values are significant enough to
explain the dependent variable.

63
Table 8
Ordinary Least Squares Method
Coefficient Std. Error t-Statistic Prob.
C(1) 1.329899 0.079904 16.64375 0.0000

C(2) -0.425318 0.078031 -5.450610 0.0000
C(3) 0.234847 0.065975 3.559656 0.0005
Determinant residual covariance 0.000758
Equation: LFPRICESA = C(1)*LFPRICESA(-1) + C(2)*LFPRICESA(-2)

+ C(3)
Observations: 130
R-squared 0.904805 Mean dependent var 2.450104
Adjusted R-squared 0.903306 S.D. dependent var 0.089592
S.E. of regression 0.027859 Sum squared resid 0.098570
Durbin-Watson stat 2.049812
System: UNTITLED
64
Estimation Method: Least Squares

Date: 05/10/18 Time: 12:58
Sample: 2007M03 2017M12
Total system (balanced) observations 130
Table 8 showed the OLS estimation of LFPRICESA after its AR estimation, as
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
probability of t-statistics first. If the value is less than 5%, then the variable is
significant, otherwise it is insignificant. The table above shows the coefficients of the
OLS model as well as their respective t-statistics probability values. The equation
written in the lower portion of the OLS estimation summary shows the corresponding
independent variables the coefficients are attributed into. The value of t-statistics
probability of LFPRICESA(-1) is found to be less than 5%, which implies its statistical
significance. In the same manner, the probability of t-statistics value of LFPRICESA(-
2) of 0.00% shows that it is statistically significant at 5%. Overall, both LFPRICESA(-
1) and LFPRICESA(-2) are significant enough to explain the changes in LFPRICESA.
The model proves that it is not spurious because the R-squared value is less than the
value of Durbin-Watson statistics. Therefore, the farmers can rely on this model when
making their decisions whether or not to produce more corn in the future.
Table 9
65
Forecast Evaluation (AR Model)
Variable Inc. obs. RMSE MAE MAPE Theil
LFPRICESA 132 0.081858 0.064553 2.628879 0.016690
RMSE: Root Mean Square Error

MAE: Mean Absolute Error
MAPE: Mean Absolute Percentage Error
Forecast Evaluation
Date: 05/10/18 Time: 13:00
Sample: 2007M01 2017M12
Figures 3 to 6 evaluated the performance of the top 4 ARIMA models, and
selected among the best of them, while Table 9 showed the evaluation of the AR model.
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 1, the better the
performance of the forecasting model. On the basis of MAPE, the smaller the value is,
the lesser the forecast error becomes in percentage terms. The ARIMA model (3,1,3)
has an RMSE value of 0.029114, while the AR model has 0.081858. On the basis of
RMSE, clearly, the ARIMA model performed better. On Theil’s Inequality Coefficient,
66
the ARIMA model (3,1,3) performed better given its value of 0.772748, as opposed to
the AR model’s value of 0.016690. Finally, the MAPE value of the ARIMA (3,1,3)
model is 14,802.14%, while the AR model’s MAPE value is 262.8879%. The ARIMA
model (3,1,3) failed proved to perform better than the AR model on the basis of MAPE.
Therefore, on the basis of RMSE, and Theil’s Inequality Coefficient values, the best
model to use in forecasting the farmgate prices of corn in the Philippines is the ARIMA
(3,1,3) Model.
67
2.7
2.6
2.5
2.4
2.3
2.2
2.1
07 08 09 10 11 12 13 14 15 16 17 18
LFPRICESA_ARIMA LFPRICESA
Figure 7. Actual and forecasted prices using ARIMA
Figure 7 showed the graphical representation of the actual monthly prices from
2007 to 2017, as well as the forecasted prices on 2018, using ARIMA (3,1,3) model.
This graph shows that in 2018 will start with a few months of increasing prices, which
will be followed by some months of decreasing prices. After the months of decreasing
prices, the remaining months will be coupled with increasing prices. Overall, it is safe
68
to assume that the corn farmers will earn profit if they are to start selling corn at
present.
Table 10
Actual and Forecasted Farmgate Prices of Corn Using ARIMA (3,1,3) Model
Year Month Actual Price Forecasted Price

(in PhP/kg.) (in PhP/kg.)
2007 January 2.21 -
February 2.22 -
March 2.27 -
69
April 2.31 -
May 2.34 -
June 2.34 -
July 2.32 -
August 2.33 -
September 2.34 -
October 2.34 -
November 2.32 -
December 2.31 -
2008 January 2.31 -
February 2.32 -
March 2.35 -
April 2.38 -
May 2.35 -
June 2.38 -
July 2.37 -
August 2.37 -
September 2.41 -
October 2.43 -
November 2.45 -
December 2.47 -
2009 January 2.54 -
February 2.57 -
March 2.48 -
April 2.47 -
May 2.42 -
Continued
…

June 2.32 -
July 2.30 -
August 2.22 -
September 2.20 -
70
October 2.21 -
November 2.28 -
December 2.28 -
2010 January 2.30 -
February 2.34 -
March 2.40 -
April 2.40 -
May 2.38 -
June 2.42 -
July 2.42 -
August 2.42 -
September 2.40 -
October 2.40 -
November 2.44 -
December 2.49 -
2011 January 2.51 -
February 2.51 -
March 2.50 -
April 2.44 -
May 2.43 -
June 2.43 -
July 2.42 -
August 2.41 -
September 2.43 -
October 2.50 -
November 2.57 -
Continued

December 2.57 -
2012 January 2.59 -
February 2.57 -
March 2.50 -
71
April 2.50 -
May 2.52 -
June 2.51 -
July 2.51 -
August 2.52 -
September 2.55 -
October 2.56 -
November 2.56 -
December 2.54 -
2013 January 2.50 -
February 2.44 -
March 2.44 -
April 2.45 -
May 2.46 -
June 2.47 -
July 2.46 -
August 2.47 -
September 2.52 -
October 2.52 -
November 2.49 -
December 2.48 -
2014 January 2.46 -
February 2.44 -
March 2.47 -
April 2.50 -
May 2.54 -
Continued
…

June 2.58 -
July 2.58 -
August 2.66 -
September 2.62 -
72
October 2.60 -
November 2.55 -
December 2.53 -
2015 January 2.49 -
February 2.48 -
March 2.51 -
April 2.51 -
May 2.52 -
June 2.52 -
July 2.53 -
August 2.54 -
September 2.53 -
October 2.50 -
November 2.47 -
December 2.45 -
2016 January 2.44 -
February 2.47 -
March 2.50 -
April 2.50 -
May 2.53 -
June 2.55 -
July 2.56 -
August 2.55 -
September 2.51 -
October 2.44 -
November 2.41 -
Continued

December 2.40 -
2017 January 2.40 -
February 2.40 -
March 2.40 -
73
April 2.41 -
May 2.42 -
June 2.41 -
July 2.41 -
August 2.44 -
September 2.50 -
October 2.50 -
November 2.52 -
December 2.52 -
2018 January - 2.54
February - 2.55
March - 2.55
April - 2.55
May - 2.53
June - 2.52
July - 2.51
August - 2.51
September - 2.51
October - 2.53
November - 2.55
December - 2.56
74
2.7
2.6
2.5
2.4
2.3
2.2
2.1
07 08 09 10 11 12 13 14 15 16 17 18
LFPRICESA_AR LFPRICESA
Figure 8. Actual and forecasted prices using AR
The graph above showed the actual and forecasted prices using the AR model.
Contrary to what is shown by the results of using ARIMA model, the AR model
predicted that prices will continuously increase throughout the entire 2018. This only
means that if the corn farmers were to start selling corn at present, they will earn profit
by the end of 2018. This graphical result, as far as earning profit is concerned, agrees
75
that ARIMA (3,1,3) model is a better model in forecasting the price of corn in the
Philippines.
Table 11
Actual and Forecasted Farmgate Prices of Corn Using AR Model

2007 January 2.21 -
February 2.22 -
March 2.27 -
76
April 2.31 -
May 2.34 -
June 2.34 -
July 2.32 -
August 2.33 -
September 2.34 -
October 2.34 -
November 2.32 -
December 2.31 -
2008 January 2.31 -
February 2.32 -
March 2.35 -
April 2.38 -
May 2.35 -
June 2.38 -
July 2.37 -
August 2.37 -
September 2.41 -
October 2.43 -
November 2.45 -
December 2.47 -
2009 January 2.54 -
February 2.57 -
March 2.48 -
April 2.47 -
May 2.42 -
Continued
…

June 2.32 -
July 2.30 -
August 2.22 -
September 2.20 -
77
October 2.21 -
November 2.28 -
December 2.28 -
2010 January 2.30 -
February 2.34 -
March 2.40 -
April 2.40 -
May 2.38 -
June 2.42 -
July 2.42 -
August 2.42 -
September 2.40 -
October 2.40 -
November 2.44 -
December 2.49 -
2011 January 2.51 -
February 2.51 -
March 2.50 -
April 2.44 -
May 2.43 -
June 2.43 -
July 2.42 -
August 2.41 -
September 2.43 -
October 2.50 -
November 2.57 -
Continued

December 2.57 -
2012 January 2.59 -
February 2.57 -
March 2.50 -
78
April 2.50 -
May 2.52 -
June 2.51 -
July 2.51 -
August 2.52 -
September 2.55 -
October 2.56 -
November 2.56 -
December 2.54 -
2013 January 2.50 -
February 2.44 -
March 2.44 -
April 2.45 -
May 2.46 -
June 2.47 -
July 2.46 -
August 2.47 -
September 2.52 -
October 2.52 -
November 2.49 -
December 2.48 -
2014 January 2.46 -
February 2.44 -
March 2.47 -
April 2.50 -
May 2.54 -
Continued
…

June 2.58 -
July 2.58 -
August 2.66 -
September 2.62 -
79
October 2.60 -
November 2.55 -
December 2.53 -
2015 January 2.49 -
February 2.48 -
March 2.51 -
April 2.51 -
May 2.52 -
June 2.52 -
July 2.53 -
August 2.54 -
September 2.53 -
October 2.50 -
November 2.47 -
December 2.45 -
2016 January 2.44 -
February 2.47 -
March 2.50 -
April 2.50 -
May 2.53 -
June 2.55 -
July 2.56 -
August 2.55 -
September 2.51 -
October 2.44 -
November 2.41 -
Continued

December 2.40 -
2017 January 2.40 -
February 2.40 -
March 2.40 -
80
April 2.41 -
May 2.42 -
June 2.41 -
July 2.41 -
August 2.44 -
September 2.50 -
October 2.50 -
November 2.52 -
December 2.52 -
2018 January - 2.52
February - 2.53
March - 2.53
April - 2.53
May - 2.53
June - 2.53
July - 2.54
August - 2.54
September - 2.54
October - 2.54
November - 2.54
December - 2.55
Differences Between the Actual Data and Predictive Data
This last part of the chapter discussed about the gap between the actual data and
the predictive data using AR and ARIMA (3,1,3) models. The previous discussions
showed how to estimate the forecasting models ARIMA (3,1,3) and AR, and how
accurate these two models are in forecasting future prices. Provided in this section is a
discussion on which model has the closer predictive data to the actual data.
81
The results indicated that there is a huge gap between the predictive data using
ARIMA (3,1,3) model and the actual data. While the de-seasonalized logarithmic data
had a lowest value of 2.20 and a highest value of 2.66, the predictive value revolved
around 0.0. This is not a good indication for the farmers to plant corn if they are to
adapt this model in their production decisions. On the other hand, there is a
considerable gap between the predictive data using AR model and the actual data. The
predictive value had a starting value of 2.29 in 2007, and 2.52 in 2017. The farmers will
most likely earn profit from producing corn at present, ceteris paribus.
Table 10
ARIMA Model (3,1,3) OLS Estimation
Variable Coefficient Std. Error t-Statistic Prob.
C 0.002216 0.003366 0.658180 0.5116

AR(1) 1.648502 0.023556 69.98140 0.0000
AR(2) -0.983811 0.023713 -41.48812 0.0000
MA(1) -1.396783 0.096188 -14.52142 0.0000
MA(2) 0.658443 0.137901 4.774740 0.0000
82
MA(3) 0.186109 0.090752 2.050744 0.0424

SIGMASQ 0.000688 8.31E-05 8.285646 0.0000
R-squared 0.300043 Mean dependent var 0.002399

Adjusted R-squared 0.266174 S.D. dependent var 0.031480
S.E. of regression 0.026967 Akaike info criterion -4.316214
Sum squared resid 0.090175 Schwarz criterion -4.162578
Log likelihood 289.7120 Hannan-Quinn criter. -4.253785
F-statistic 8.858944 Durbin-Watson stat 2.003855
Prob(F-statistic) 0.000000
Inverted AR Roots .82-.55i .82+.55i

Inverted MA Roots .79-.58i .79+.58i -.19
Dependent Variable: D(LFPRICESA)

Method: ARMA Maximum Likelihood (OPG - BHHH)
Date: 05/10/18 Time: 13:08
Sample: 2007M02 2017M12
Convergence achieved after 44 iterations
Coefficient covariance computed using outer product of gradients
Table 10 showed the OLS estimation of ARIMA model with AR(3), I(1) and
MA(3) terms. This is the exact ARIMA model used to check the gap between the actual
and predictive prices. The R-squared is the measurement of how successful the
regression model is. In this model, it means the fraction of the variance of
D(LFPRICESA) that can be explained by the independent variables. If it shows a value
of 100%, it means that the regression fits perfectly, which is not practical in real life
situations. In this model the R-squared value is 30.0043%, and this means that the
independent variables in this model explain 30.0043% of the changes in the dependent
variable, D(LFPRICESA).
83
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
07 08 09 10 11 12 13 14 15 16 17
LFPRICESA LFPRICESA_ARIMA
Figure 9. Forecast graph

84
It can be seen from the graph the comparison between the actual and forecasted
values of LFPRICESA. There exists a considerable gap between the actual value and
the forecasted value. The actual values exhibited a nearly horizontal trend, with few
price fluctuations. On the contrary, the forecasted values exhibited a somewhat volatile,
yet neither increasing nor decreasing, trend. Overall, the assumption is that in the long-
run, due to the forecasted prices being low, it is not advisable for the corn farmers to
produce corn at present as they will only be suffering huge losses in doing so.
85
2.7
2.6
2.5
2.4
2.3
2.2
2.1
07 08 09 10 11 12 13 14 15 16 17
LFPRICESA LFPRICESA_AR
Figure 10. Forecast graph

86
The graph above showed 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 showed a steady increasing trend at an
increasing rate. This only suggests that in the long-run, with the right timing, the
farmers somehow might be able to enjoy earning a profit from producing corn at
present. However, it can be observed that the profit the farmers will gain in the future
will not be enough to cover the losses that they will most likely incur.
87
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
07 08 09 10 11 12 13 14 15 16 17
LFPRICESA
LFPRICESA_AR
LFPRICESA_ARIMA
Figure 11. Forecast comparison graph

88
Figure 11 presented the graphical comparison summary of the performance
models of ARIMA and AR models. In the graphs presented above, it was proven that
the AR model would most likely be more helpful to the corn farmers as opposed the
ARIMA model. However, the AR model only suggests that the farmers will be able to
earn much profit if they were to rely on this model in their production decisions. If
there are any other models that will give the farmers the opportunity to earn more and
lose less, then it will be more strongly preferred.
CHAPTER VI
89
SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
Summary
The research was primarily concerned in determining the model that would best
forecast the farmgate prices of corn in the Philippines. The researcher gathered the
monthly farmgate corn prices directly from the PSA. Given the wide range of
forecasting models available, the researcher decided to compare the performances of
ARIMA and AR models in this univariate analysis. The main 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 2007 to 2017.
Tables 1 showed the trend of the farmgate prices of corn in the Philippines from
2007 to 2017. It was found out that regardless of the varying price fluctuations, the
farmgate prices exhibit a continuous upward trend, which led to an assumption that in
the long-run, prices of corn will further increase given various factors.
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
ARIMA model, there were six steps followed in order to provide a good ARIMA
90
model. Overall, it was needed to convert the prices into logarithmic form, and so far
there was no need to difference the dependent variable. After the ARIMA model, the
AR 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
independent variables, LFPRICESA(-1) and LFPRICESA(-2) are significant enough
individually to explain the changes in the dependent variable, LFPRICE, and it turned
out that both LFPRICESA(-1) and LFPRICESA(-2) are statistically significant enough
to explain the changes in LFPRICE given the probability of t-statistics values. From
there, a forecasting model based on AR can be estimated.
Conclusions
The univariate study was conducted in order to compare the performances of
ARIMA and AR models, and to 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, the AR performed well and that both
the independent variables are significant. The AR proved to be non-spurious because its
R-squared value exceeds its Durbin-Watson statistic value. The ARIMA (3,1,3) model,
however, had an R-squared value of 30.2949%, and this is most likely due to the lack of
independent variables accounting for many different factors that can possibly affect
D(LFPRICESA). The deciding factor of these two models is when their MAPE, 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
91
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 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. Lastly, the lower the value of MAPE is, the lesser the forecast
error becomes. The results showed that the RMSE value of ARIMA Model is lower
than that of AR Model’s, the former model’s Theil’s Inequality Coefficient value is
closer to 1 than the latter model, and the latter model’s MAPE value is way lower than
that of the former model’s. In this study, satisfying two among the three criteria, the
ARIMA model proved to be the best model to use in forecasting the farmgate prices of
corn in the Philippines.
Recommendations
The research was able to show clearly that the ARIMA Model is better than the
AR Model. However, some things have to be taken into consideration. First, the
ARIMA model was only able to outperform the AR model in two out of three criteria.
This only suggests that not all cases will the ARIMA model perform better against the
AR model.
This is a good study which is not thoroughly looked up to in the Philippines.
Given that situation, it is advised for the future researchers to work on other models,
aside from ARIMA and AR, which can be used to compare performances with the two
models in this study.

92
Next, 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. This also became a problem because the ARIMA (3,1,3) forecasting model had
a low R-squared value. So adding more independent variables will do much help. 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.
This study is only limited to the corn prices in the Philippines. The future
researchers, and the government as well are recommended to gather the data of corn
prices, assuming they are available and accessible, 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.
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De La Salle University – Dasmariñas

FORECASTING THE PRICE OF

BILLY JULIUS M. GESTIADA

De La Salle University – Dasmariñas

According to the Agricultural Management Assistance (AMA) (2008) and the

Food and Agriculture Organization Corporate Statistical Database (FAOSTAT) (2012),

161.9 million hectares.

De La Salle University – Dasmariñas

corn whiskey are made from corn.

it is true that the US is maintaining its current reputation as an international exporter of

annually. (NathanF, 2015)

supply-relationship of corn, resulting to the other markets adjusting to the US market’s

De La Salle University – Dasmariñas

large. (United States Department of Agriculture Economic Research Service [USDA

In many countries, particularly the developing ones, commodities still remain a

reliable source of export earnings. Moreover, price movements of these commodities

play a major role on overall macroeconomic performance. Commodity-price forecasts

are essential in formulating and planning macroeconomic policies. (Bowman and

knowledge of commodity prices.

Background of the Study

The importance of forecasting commodity prices, corn included, remains a

De La Salle University – Dasmariñas

amount of information regarding supply and demand. Furthermore, it also requires

extensive surveys to be distributed to a large sample in a particular study. That being

model to use in forecasting over a long horizon, over six months.

analysed the performances of three different types of commodity price forecasts

namely: judgment-based, historical price-based, and commodity futures-based. Since

in directional terms, at the very least.

De La Salle University – Dasmariñas

might be preferred because it totally outperforms nonlinear models most especially

De La Salle University – Dasmariñas

Statement of the Problem

Commodity price forecasting is an essential part of any industry involving

the future. (Jha and Sinha, 2013)

Another problem in conducting a commodity price forecast is the volatility of

(Bowman and Husein, 2004)

De La Salle University – Dasmariñas

relative errors. (Li, Xu and Li, 2010)

Basically, these studies only present behaviors, relationships, performances, impacts,

answered the following questions:

2. How do Autoregressive Integrated Moving Average (ARIMA) and AR models

perform in forecasting the price of corn in the Philippines?; and

3. How do the predictive data and actual data differ?

Objectives of the Study

De La Salle University – Dasmariñas

systematic way, the following specific objectives were made:

2. To investigate the performances of ARIMA and AR models in forecasting the price

of corn in the Philippines; and

Hypotheses of the Study

Dash, Solanki and S. (2012) conducted a study in India regarding commodity

supply constraints, costs of production, foreign exchange holdings, and some

study more properly and systematically, the researcher hypothesized that:

H1: There is an existence of either trend or seasonality in the corn prices.

De La Salle University – Dasmariñas

Jadhav, Reddy and Gaddi (2017) conducted a study on the application of

forecasting the price of corn in the Philippines.

Significance of the Study

De La Salle University – Dasmariñas

uncontrollable circumstances that could negatively affect the commodity prices, it is

Scope and Limitations

De La Salle University – Dasmariñas

through the data sources of this study.