Urbana, Illinois
February 28, 2006
While USDA crop production
forecasts have performed reasonably well over a 36-year period,
there is room for improvement, according to two
University of Illinois
professors in a recent study.
"The USDA may want to consider expanding the scope of the
subjective yield surveys it uses in making the forecasts in
order to incorporate a wider range of market and industry
participants," said Darrel Good, a professor in the Department
of Agricultural and Consumer Economics, who co-authored the
study with Scott Irwin, who is the Laurence J. Norton Professor
of Agricultural Marketing in the department.
However, the bigger problem Good and Irwin found is the apparent
continuing misunderstanding of the USDA's motives, methods, and
procedures used to arrive at the production forecast for U.S.
corn and soybean crops.
"This misunderstanding was vividly illustrated by comments from
producers, commodity analysts, and farm market advisory services
following the release of the August 2003 forecast," said Good.
"Some described their reaction as 'dismay' and questioned the
motives of the USDA.
"Some in the agricultural community apparently even believe that
the USDA manipulates crop forecasts to fulfill some mystical
objectives that are contrary to the best interest of farmers."
The report, "Understanding USDA Corn and Soybean Production
Forecasts:
Methods, Performance and Market Impacts over 1970-2005," can be
viewed online through farmdoc at:
http://www.farmdoc.uiuc.edu/agmas/index.html .
Good and Irwin decided to examine the crop production forecasts
over a 36-year period to learn if they matched final production
figures or if they varied widely and unpredictably.
To generate its crop production forecasts, the USDA uses a
highly sophisticated and well-documented procedure, Good
explained.
"The USDA generates crop production forecasts based on estimates
of planted and harvested acreage and two types of yield
indications--a farmer-reported survey and objective
measurements," said Good.
The study found that month-to-month changes in USDA corn and
soybean production forecast from 1970 through 2005 indicated
little difference in magnitude and direction of monthly changes
over time.
"There appeared to be no trend in the size or direction of
forecast errors over the study period," said Good.
On average, USDA corn production forecasts were more accurate
than private market forecasts over 1970-2005. One exception was
the August forecast over 1985-2005.
"The forecasting comparisons for soybeans were somewhat
sensitive to the measure of forecast accuracy considered," said
Good. "One measure showed that private market forecasts were
more accurate than USDA forecasts for August regardless of the
time period considered. Another measure showed just the
opposite."
USDA corn production forecasts had the largest impact on corn
futures prices in August and recent price reactions have been
somewhat larger than historical reactions, Good noted.
"Similar to corn, USDA soybean production forecasts had the
largest impact on soybean futures prices in August with recent
price reactions appearing somewhat larger than in the past,"
said Good.
In the final analysis, the study failed to confirm suspicions by
some that the crop production forecasts were inaccurate or
biased.
"Our analysis suggests that over the long run the USDA performs
reasonably well in generating crop production forecasts for corn
and soybeans," said Good. "There is strong evidence that market
participants view USDA corn and soybean production forecasts as
important new information.
"There is clearly a need for a better understanding of all
aspects of the USDA crop production forecasting process." |