Understanding USDA Corn and Soybean Production Forecasts: An Overview of Methods, Performance and Market Impacts

Abstract

The purpose of this report is to improve understanding of USDA crop forecasting methods, performance and market impact. A review of USDA’s forecasting procedures and methodology confirmed the objectivity and consistency of the forecasting process over time. No changes in methodology occurred in 2003. Month-to-month changes in corn and soybean production forecasts from 1970 through 2003 indicated little difference in magnitude and direction of monthly changes over time. USDA production forecast errors were largest in August and smaller in subsequent forecasts. There appeared to be no trend in the size or direction of forecast errors over time. On average, USDA corn production forecasts were more accurate than private market forecasts over 1970-2003, with the exception of August forecasts since the mid-1980s. Private market forecasts in soybeans were more accurate than USDA forecasts for August, regardless of the time period considered. As the growing season progresses the USDA’s relative accuracy in soybeans improved. 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. For soybeans, the largest reactions in futures prices occurred in August and September, but recent reactions have been large in October. Overall, the analysis suggests the USDA performs reasonably well in generating crop production forecasts for corn and soybeans.