You are here

Grading USDA crop production reports

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."

Irwin acknowledges that's not an easy shift from current procedure, but considering the twofold benefit -- less rampant market speculation and the ability for federal-level crop data to be combined with more local weather/crop condition information -- he says it's worth a lot of consideration.

"It is our view that most market participants would welcome this additional information and it would greatly improve not only the understanding but the usefulness of NASS forecasts. Few market participants understand the crucial role that compensating biases play in the historical accuracy of NASS corn and soybean yield forecasts.  We see no reason not to explicitly acknowledge this part of the forecasting process," Irwin's report says. "To date, our understanding has been that NASS corn and soybean yield forecasts did not consider either weather or crop condition data in determining final yield forecasts.  Since one of the coauthors of these studies is the chief of the statistical methodology research branch in NASS, the research obviously has the official sanction of NASS.  If NASS has changed its procedures for determining final published yield estimates or is considering a change in procedures for the future, it is very important that market participants be made fully aware of the change."

Then, add into the equation today's precision ag technology. It's now possible for farmers to glean exponentially more in-depth data from their fields. And, that data should be accounted for in federal crop-size estimates, according to Irwin, Sanders and Good.

"A review of NASS corn and soybean yield estimates would be incomplete without some discussion of the ongoing technological revolution widely known as precision agriculture. One part of this revolution is the widespread use of yield monitors to provide real-time data on grain yields as crops are harvested. While there certainly are issues with the accuracy of this source of yield data, there is no reason not to expect the accuracy and availability of this data to increase substantially over time," the economists say. "We are unaware of any research in the public domain about how this potentially valuable source of yield data could be used in the future to improve the accuracy of NASS crop yield estimates, as well as potentially increase the frequency of estimates. We recommend that NASS initiate a research project to study how yield monitor data could be incorporated into crop yield estimation procedures."

Read more about