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USDA
reports examined
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[OCT.
29, 2003]
URBANA -- Recent USDA corn
and soybean forecasts have generated strong reactions from some
producers and market analysts, according to a University of Illinois
agricultural economist. Addressing those concerns, Scott Irwin and
Darrel Good, professors in the Department of Agricultural and
Consumer Economics, have issued a new study, "Understanding USDA
Corn and Soybean Production Forecasts: An Overview of Methods,
Performance and Market Impacts."
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The study is available on the Farmdoc
website in the AgMAS section at
http://www.farmdoc.uiuc.edu/agmas/index.html.
"There appears to be continuing
misunderstanding of USDA's motives, methods and procedures used to
arrive at production forecasts for U.S. corn and soybean crops,"
said Irwin. "This was vividly illustrated by comments we received
from producers, commodity analysts and farm market advisory services
following the release of the August 2003 forecasts."
According to Irwin, many in the
agricultural sector questioned the USDA reports' methods and
accuracy and raised doubts about objectivity.
"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
interests of farmers," said Irwin.
Irwin and Good examined the USDA
reporting system's methodology and results from 1970 through 2002
for corn and soybean crops.
"A review of the USDA's forecasting
procedures and methodology confirms the objectivity and consistency
of the forecasting process over time," said Irwin.
However, he added that there were
errors. There are also some areas where improvements could be made.
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"USDA production forecast errors are
largest in August over the period studied and smaller in subsequent
forecasts," he said. "There appears to be no trend in the size or
direction of forecast errors over time."
Irwin said that, on average, USDA corn
production forecasts are more accurate than private sector forecasts
over 1970-2002, with the exception of August forecasts since the
mid-1980s.
"In contrast, private sector soybean
production forecasts generally are more accurate than USDA forecasts
in August and September," he said. "USDA corn production forecasts
have 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 occur in
August and September, but recent price reactions have been large in
October."
Overall, the study suggests the USDA is
performing reasonably well.
"There is
nonetheless room for improvement," said Irwin. "In particular, the
USDA may want to consider expanding the scope of the subjective
yield surveys to incorporate a winder range of market and industry
participants."
[University
of Illinois news release]
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