A Comparison of Artificial Neural Network and Time Series Models for Timber Price Forecasting

Abstract

The majority of the existing studies on timber price forecasting are based on ARIMA/SARIMA autoregressive moving average models, while vector autoregressive (VAR) and exponential smoothing (ETS) models have been employed less often. To date, timber prices in primary timber markets have not been forecasted with ANN methodology. This methodology was used only for forecasting lumber futures. Low-labor-intensive and relatively simple solutions that can be used in practice as a tool supporting decisions of timber market participants were sought. The present work sets out to compare RBF and MLP artificial neural networks with the Prophet procedure and with classical models (i.e., ARIMA, ETS, BATS, and TBATS) in terms of their suitability for forecasting timber prices in Poland. The study material consisted of quarterly time series of net nominal prices of roundwood (W0) for the years 2005–2021. MLP was found to be far superior to other models in terms of forecasting price changes and levels. ANN models exhibited a better fit to minimum and maximum values as compared to the classical models, which had a tendency to smooth price trends and produce forecasts biased toward average values. The Prophet procedure led to the lowest quality of projections. Ex-post error-based measures of prediction accuracy revealed a complex picture. The best forecasts for alder wood were obtained using the ETS model (with RMSE and MAE values of approx. 0.38 € m−3). ETS also performed well with respect to beech timber, although in this case BATS was just as good in terms of RMSE, while the difference between ETS and neural models amounted to as little as 0.64 € m−3. Birch timber prices were most accurately predicted with BATS and TBATS models (MAE 0.86 € m−3, RMSE 1.04 € m−3). The prices of the most popular roundwood types in Poland, i.e., Scots pine, Norway spruce, and oaks, were best forecasted using ANNs, and especially MLP models. Among the neural models for oak (MAE 4.74 € m−3, RMSE 8.09 € m−3), pine (MAE 2.21 € m−3, RMSE 2.83 € m−3), beech (MAE 2.31 € m−3, RMSE 2.70 € m−3), alder (MAE 1.88 € m−3, RMSE 2.40 € m−3), and spruce (MAE 2.44 € m−3, RMSE 2.58 € m−3), the MLP model was the best (the RBF model for birch). Of the seven models used to forecast the prices of six types of wood, the worst results were obtained for oak wood, while the best results were obtained for alder.