SALES FORECASTING
Although agribusiness markets are well known for their volatility, agribusiness
managers cannot escape the responsibility of forecasting sales. Nearly every
management decision includes a critical assumption about the level and timing of sales
volume. All production schedules are built around projected demand. Raw-material
purchases are based on expected sales. The personnel function of hiring and fi ring is
greatly influenced by anticipated sales. Cash needs are based on sales forecasts. Capital
investments in new facilities are heavily influenced by sales projections. The allocation
of resources to research and development is based heavily on the expected sales of the
resulting products. The fact is that a great majority of management decisions and much
of the entire planning process rests squarely on forecasted sales.
Sales forecasting involves predicting sales in dollars and physical units as
accurately as possible for a specific period of time. Many times, this means forecasting
sales for the total market, and then determining what share of the market can be
captured with a specific product or service.
Both short-term and long-term sales forecasts are useful for agribusiness. Short-
term forecasts, usually one season or shorter for agribusiness firms, are useful in
formulating current operating plans. In food firms, such forecasts may be weekly or daily.
In a food service firm, forecasts may be hourly as the firm works to schedule food
preparation to accommodate daily patterns. Longer-range sales forecasts are important
for capacity and research and development decisions. In general, the longer the time
period forecasted, the less accurate the forecast is likely to be. However, forecasting
short-term volatility can be a major challenge as well.
Difficulty and complexity notwithstanding, agribusiness managers need relatively
accurate sales forecasts. Such forecasts may be prepared in a formal manner using
thorough economic and marketing analysis, or they may be more informal and based on
assumptions from a variety of practical perspectives. Here, three types of forecasts will
be considered — general economic forecasts, market forecasts, and sales forecasts.
General economic forecasts
General economic forecasts consider broad factors that affect the total economy.
Government farm programs, inflation, the money supply, international policy and trade
agreements, exchange rates, interest rates, population demographics, and a host of
other factors are included in such forecasts. A great many government and private
economists spend much time tracking economic trends and making such projections.
Agribusiness managers watch these opinions carefully as they formulate market plans.
Forecasts of such general economic indicators have a fundamental role in an
assessment of the market environment as part of the SWOT analysis and in the marketing
audit.
Typically, these types of forecasts are generated by sophisticated econometric
models of the domestic and world economies. Using such models, forecasts for a variety
of indicators at different points in the future can be generated. This information is very
important to agribusiness marketers. A firm selling capital equipment to farmers and
ranchers knows that purchases are heavily influenced by interest rates. Long-term
prospects for stable to declining interest rates mean this factor in the farmer’s capital
equipment purchasing equation is positive. A regional retail food chain may find that
economists are predicting a harsh recession in the area served by their stores. Such
information will have important implications for the firm’s sales as some customers
reduce luxury purchases and focus more on staple products.
