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

About This Publication

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 confirms 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 2002 indicate little difference in magnitude and direction of monthly changes over time. USDA production forecast errors are largest in August and smaller in subsequent forecasts. There appears to be no trend in the size or direction of forecast errors over time. 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. 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 reactions have been large in October. Overall, the analysis suggests the USDA performs reasonably well in generating crop production forecasts for corn and soybeans.

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