Understanding USDA Corn and Soybean Production Forecasts : Methods, Performance and Market Impacts over 1970 – 2004

There appears to be continuing misunderstanding of US Department of Agriculture (USDA) motives, methods and procedures used to arrive at production forecasts for US corn and soybean crops. This was vividly illustrated by comments from producers, commodity analysts and farm market advisory services following the release of the August 2003 forecasts. For example, we received the following e-mail inquiry from a farmer after the release of these forecasts:

“I have a question concerning the August and the September crop production reports. A friend told me that the numbers that came out in the August report, which were lower than many predicted, were utilizing a weather forecast for a hotter and drier 30 day outlook, as of August 1 (the forecast would have been for the month of August). He said that the USDA was trying to use a new system, which would take into account the weather forecast, along with the usual crop conditions and yield checks. I was under the assumption that the August crop report took field surveys as of August 1, and then assumed average weather for the rest of the growing season. If my friend was correct, then this could potentially mean that the dropping crop conditions have already been factored in, and that the September report may only have a slight revision downward.”

Market analysts, as represented below, also echoed these concerns:

“There has been considerable dismay in the industry as to USDA’s August corn and soybean estimates. Most do not see them as real objective analysis…We think that NASS just missed it by being too conservative with an immature corn and soy crop.”

These comments nicely illustrate the importance placed on USDA crop forecasts by market participants and the potential for misunderstanding of the methods used to produce the forecasts. 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 . There is clearly a need for a better understanding of all aspects of the USDA crop production forecasting process.

The objectives of this report are to 1) provide an overview of the forecasting process for corn and soybean production used by the USDA , 2) present monthly production forecasts for the 1970 through 200 4 corn and soybean crops, 3) examine relationships in the monthly changes in production forecasts, 4) examine errors in the USDA forecasts, 5) compare USDA forecasts to private market forecasts and 6) examine the price response to USDA forecasts and the relationship of the responses to report “surprises . ” This information should improve understanding of USDA crop forecasting methods, performance and market impact.

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