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Grading USDA crop production reports

Jeff Caldwell 01/20/2014 @ 1:53pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

Though there's no real evidence of tampering or bias in USDA crop data, there are things government officials can do to improve both the data gathered and the way it's presented in a time when the marketplace has a laser-sharp focus on every major crop report USDA releases, a group of economists say.

It's not exactly a bias, but there's been a "tendency" by USDA-NASS officials to be conservative in their crop estimates in the last few years, especially for soybeans, according to a recent report from University of Illinois Extension ag economists Scott Irwin, Dwight Sanders, and Darrel Good. The data's not intentionally inaccurate; rather, it's the market's reaction that makes the data -- whether right or wrong -- have a larger effect on the grain markets than in the past. In other words, when the market expects a number and doesn't get it, prices move more sharply today than they did based on the same reports a decade ago, especially for soybeans.

"There is no evidence of problems with the accuracy of NASS corn yield forecasts, which have actually shown improved accuracy in recent years. However, a tendency for soybean forecasts to be conservative, in the sense of underestimating final yield, has developed in recent years. The downward bias in soybean yields has also led to market analysts consistently being surprised in the opposite direction," according to Irwin. "Consequently, soybean forecasts by market analysts have been more accurate than NASS forecasts at times, but market prices may have been nudged in the wrong direction given the benchmark status of NASS forecasts."

Though the same's not true for corn, in the Illinois economists' estimation, they recommend USDA examine its procedures for forecasting soybean yields to see if any of the observed "non-negligible" bias could be rectified.

The grain marketplace's reaction to big USDA reports -- a reaction that can send futures contracts limit-up or limit-down -- is just as major a component of the speculation that USDA's data-gathering procedures may need revamping. But, Irwin asserts that the enhanced focus on the agency's reports by the trade fuels early conclusions -- right or wrong -- that could be avoided by more information disclosure.

"Our review also highlighted the ongoing problem of widespread misunderstanding and confusion about the forecasting procedures used by NASS to generate corn and soybean yield forecasts. While this problem likely can never be fully solved, and we are well aware of and applaud the ongoing efforts that NASS makes to communicate with market participants, we believe more can and should be done to address the misunderstanding and confusion," Irwin's report reads. "We recommend that NASS 'open up the black box' for each monthly corn and soybean yield forecast as much as possible. This should include: Presentation of state and national yield forecasts derived from the agricultural yield survey (AYS) and the objective yield survey (OYS), as well as the usual composite forecast derived from the two surveys; presentation of assumptions regarding fruit weights used in deriving OYS yield forecasts during forecast months when these measurements are not available; and some form of recognition of the degree to which weather and crop condition data influence composite forecasts."

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