How useful do you find market forecasts?
They’re certainly popular. They’re about the most popular things at farm shows other than weather forecasts.
You can always tell when a weather or markets outlook session is about to be held at a farm show because near the end of an agronomy or policy session you’re watching, you notice people begin streaming to attend the next session.
But how valuable is the information? My guess: not very.
That’s not the fault of the prognosticators, I don’t think. We, farmers and those (like me) who serve them, demand they give us their best guesses about what they think the weather or the markets are going to do, and they usually have the guts and the confidence to provide it. That’s what we want.
But they seldom think to specify just how confident they are in their predictions, and we seldom ask them.
There’s a big difference between an analyst of weather or markets being almost certain something’s going to happen, and him thinking that something is “most likely” among various scenarios, but still not very likely.
I was struck by this when a weather outlook I attended presented an analyst who broke out his predictions in terms of percentages. One scenario he said was most likely was only, in his view, about 30 percent likely to happen. There were a bunch of other scenarios that could also occur.
Knowing that his most likely scenario was still unlikely to occur helped me realize that this particular situation was just a guessing game, and I was grateful for that.
With markets, it’s much the same. Analysts, at least those with guts, will give you their best guess on where things are going, but sometimes they have high confidence and sometimes they’re really not sure. Knowing where an analyst’s prediction is on the spectrum of likelihood and confidence tells you a lot.
I often remind myself to ask analysts how likely their predictions are, in their minds, to actually come true.
Next time you’re at a weather or markets outlook and you hear an analyst giving you their predictions about what’s going to happen, think of asking them how likely they think their predictions are to become true.
There’s a big difference between somebody thinking there’s a 90 percent chance of canola going to $12 per bushel and somebody thinking canola is most likely to go to $12, but has only a 30 percent chance of getting there.