USDA Forecasts: Dispelling Myths and Misunderstandings

March 24, 2011 09:18 PM
 

By Darrel Good and Scott Irwin, University of Illinois

 
Editor’s Note: This is a portion of Good and Irwin’s marketing and outlook brief on USDA’s acreage estimate and yield forecast methods. Read the entire brief.
 
The U.S. is the world's largest producer and exporter of corn and soybeans. As a result, the size of the crops in the U.S. has a substantial impact on the price of corn and soybeans. The National Agricultural Statistics Service (NASS) of the U.S. Department of Agriculture (USDA) is the primary provider of public information relative to potential crop size.
 
There can be little doubt that NASS acreage and production reports are among the biggest market movers year-in and year-out.
 
Beyond misunderstanding, some market participants continue to express the belief that the USDA has a hidden agenda associated with producing the estimates and forecasts. This “agenda” centers on price manipulation for a variety of purposes, including such things as managing farm program costs and influencing food prices.
 
Lack of understanding of NASS methodology and/or the belief in a hidden agenda can prevent market participants from correctly interpreting and utilizing the acreage and yield forecasts. The purpose of this brief is to provide a condensed version of extensive NASS descriptions of acreage estimation and yield forecasting procedures for corn and soybeans.
 
Our focus is on acreage and yield because these estimates and forecasts are widely followed and highly anticipated by market participants and can have substantial influence on the price of corn and soybeans.
 
ACREAGE ESTIMATION
First in the cycle of acreage estimates is the Prospective Plantings report, currently released at the end of March each year. Prior to 1981, the report was released in April. In addition, a report of prospective plantings was also released in either January or February for a period in the 1970's and early 1980's. The estimates of planted acreage in the current Prospective Plantings report are based primarily on the March Agricultural Survey, a survey of farm operators conducted in late February and early March. The 2010 survey, for example, was conducted from February 26 through March 15. The survey is a probability survey in the sense that operations surveyed represent a sample drawn from a list of all producers in such a way that all operations have a chance to be included. This is referred to as a list frame sample. Approximately 86,000 farm operators were contacted by mail, internet, telephone, or personal interview in 2010.
 
Surveyed producers are asked to report acres planted or to be planted this spring or this summer for the (current) crop year. For corn and soybeans, respondents are asked to report acreage for all purposes, excluding popcorn and sweet corn. Respondents are not asked to report expected harvested acreage. Each state NASS field office reviews the survey data for “reasonableness and consistency” with historical estimates and the results are submitted to the NASS Agricultural Statistics Board (ASB) for an independent review. The published acreage estimates are based on survey data, but some judgment may be used based on the historical relationship of official estimates to the survey data.
 
The survey used to estimate acreage intentions is subject to sampling error since it is based on a sample of farm operators rather than a survey of all operators. That is, a different sample could produce different results and any sample might not accurately reflect the entire set of farm operators. Estimates may also reflect non-sampling errors such as incorrect reporting by survey respondents or errors in recording or processing the data.
 
NASS publishes a table in each Prospective Plantings report summarizing the reliability of the prospective plantings estimates based on the record of historical differences between the March forecast of planted acreage and the final estimate of planted acreage. Based on these differences from 1990 through 2009, NASS reported in March 2010 that there was a 2 out of 3 chance that the March forecast of corn acreage would be within 2 percent of the final estimate and a 90 percent chance that the difference would not exceed 3.5 percent. For soybeans, NASS reported that there was a 2 out of 3 chance that the difference would not exceed 2.1 percent and a 90 percent chance that the difference would not exceed 3.6 percent.
 
For corn, the March 2010 estimate of planting intentions was 88.798 million acres. The previous reliability calculations imply a 90 percent chance that actual corn acreage would be within 3.108 million acres of the estimate, or between 85.690 and 91.906 million acres. Actual planted acreage reported in January 2011 was 88.192 million acres, only 0.7 percent less than the March estimate. For soybeans, the March 2010 estimate of planting intentions was 78.098 million acres. The reliability calculations imply a 90 percent chance that actual corn acreage would be within 2.812 million acres of the estimate, or between 75.286 and 80.910 million acres. Actual planted acreage reported in January 2011 was 77.404 million acres, only 0.9 percent less than the March estimate.
 
The second in the cycle of acreage estimates is the Acreage report released at the end of June each year. The estimates of planted and harvested acreage in this report are based primarily on two surveys conducted in roughly the first two weeks of June. The 2010 survey, for example, was conducted from May 29 through June 15. One of these surveys is the June Agricultural Survey. In 2010, for example, approximately 71,500 farm operations were surveyed by phone, mail, internet, or personal interview. This survey is referred to as the list frame survey since a sample of operations to be surveyed is drawn from the list of all operations (like the earlier survey for the Prospective Plantings report). Before the sample is drawn, each farm is classified by a number of characteristics, including number of acres of crop land. Larger farms are sampled at higher rates than small farms. Very large farms are all selected for the survey and smaller farms are selected at the rate of 1 out of 25 to 50.
 
Farm operations selected for the list frame sample are asked to report acres of corn planted or intended to be planted for all purposes (excluding popcorn and sweet corn) and to report separately the acres intended for harvest for grain and for seed. Operators are asked to report acres of soybeans planted or to be planted for all purposes and acres intended to be harvested. Single cropped and double cropped acres are reported separately.
 
The second June survey is the area frame survey. This survey is described as a multi-step process. All land in each state is classified based on intensity of cultivation using a “…variety of map products, satellite imagery, and computer software packages”. Intensively cultivated areas are divided into 1 square mile segments, while less intensively cultivated areas are divided into smaller segments, down to 0.1 square mile for urban areas. Segments in intensely cultivated areas are selected at the rate of about 1 out of 125 and segments in areas of lesser intensity of cultivation are selected at the rate of 1 out of 250 to 500. In 2010, about 11,000 total segments were selected in the area frame survey. Enumerators (those employed by NASS to interview segment operators and take measurements) identify the exact location of each segment and personally interview every operator with land within the segment. Crops planted or intended to be planted and acreage intended for harvest in each field are identified.
 
Survey data are reviewed at the state and national level in the same way described for the March survey data. Data from the two surveys (list and area frame) are combined in such a way as to account for all acreage, but to avoid double-counting of acreage. The June survey is subject to the same type of sampling and non-sampling errors as described for the March survey. A summary of the reliability of the June estimates is included in each Acreage report. Based on the period 1990 through 2009, NASS reported in June 2010 that there was a 2 out of 3 chance that the June planted acreage estimate would be within 0.8 percent of the final estimate for corn and within 1.1 percent for soybeans. Similarly, there was a 90 percent chance that the difference would be less than 1.3 percent for corn and 1.9 percent for soybeans. Actual planted acreage of corn in 2010 was 0.4 percent larger than the June estimate and soybean acreage was 1.9 percent smaller than the June estimate.
 
In years of unusual delays in planting, surveyed operations may be revisited in July to determine actual plantings. Planted acreage estimates reported in June are also subject to change in August, September, October and November when yield surveys are conducted. In addition, estimates of planted acreage incorporate administrative data, primarily Farm Service Agency (FSA) certified acreage data, in October. Planted acreage estimates are also subject to change based on the December Agricultural Survey and on Census data that are available every 5 years. Adjustments in harvested acreage estimates can be made at anytime that planted acreage estimates are reviewed or new information becomes available.
 

 
Editor’s Note: This is a portion of Good and Irwin’s marketing and outlook brief on USDA’s acreage estimate and yield forecast methods. Read the entire brief.

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