USDA's Grain Stocks Report Methodology Questioned

October 4, 2011 01:00 AM
 

via a special arrangement with Informa Economics, Inc.

Some industry stakeholders signal need for a USDA/NASS review of survey methodology


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

 


USDA's National Agricultural Statistics Service (NASS) releases the quarterly Grain Stocks report. Last Friday's report was one in number of recent such surveys that provided a major market surprise to both industry analysts, traders and farmers – either more bullish or bearish for price direction following the report. The frequency of such surprises is leading some, including former USDA staffers and officials, to recommend a major USDA review of the survey's methodology.

Facts and figures. The Grain Stocks report, based on a survey of farmers and grain elevators nationwide, showed they held 1.128 billion bushels of corn as of Sept. 1, considerably above the average pre-report estimate (a Dow Jones Newswires survey had an average estimate for corn stocks at 962 million bushels, with a range of 820 million to 1.05 billion bushels), and 200 million bushels, or 23 percent, above the projection made by USDA's World Agricultural Outlook Board (WAOB/World Board) on Sept. 12 via the World Agricultural Supply/Demand (WASDE) report. The World Board's 920 million bushel projection on Sept. 12 was based on estimates of how much corn the Outlook Board thought would be used for animal feed, how much would be exported, and other variables.

"There's a lot of moving targets in the September number," Gerald Bange, chairman of the WAOB, told the Wall Street Journal. "Clearly we were not right," he said, adding that it was the World Board's best estimate.

Joe Prusacki, director of the statistics division for NASS, told the WSJ that Friday's figure was "a shock to the market because the trade expectations were not in line with what we published." He noted he heard complaints about the estimate from farmers who watched as prices for their crops tumbled. Some have his cell phone number and call him when they are unhappy, the WSJ article informed.

USDA chief economist Joe Glauber told the Financial Times that the report "is good news...For a while it seemed like every report suggested an ever-tightening situation. This has helped a little bit." But he warned: "This is still a very tight market we’re talking about."

After a controversial Grain Stocks estimate last year, NASS made a point of asking farmers to differentiate between old- and new-crop stocks, hoping that would result in a more accurate Sept. 1 stocks estimate. However, last year was an earlier harvested crop, which is not the case this year. But the point is that while NASS has made an effort of trying to improve the survey from a year ago, a surprise still resulted.

Meanwhile, the corn feed and residual use for June-August does not square based on talks with industry analysts who said it doesn't make sense because the US hogs and pigs inventory on Sep. 1 was 1 percent larger than a year earlier, while the number of cattle in feedlots was up 5 percent over the previous year. Corn feed and residual usage for the June-August quarter showed around an 8 percent cut.

A USDA analyst, asked to comment about the topic, said, "I agree the numbers have been puzzling particularly when trying to fathom the implied feed use. I was looking at quarterly data back to the mid-1970s and the implied feed and residual for Q3 and Q4 for 2010/11. Higher than expected wheat stocks means smaller implied wheat feeding for Q4 as well. Another interesting trend in the stocks report is that a greater portion of Q3 and Q4 stocks are being held off farm. This is very pronounced for corn and beans but you can see the trend in wheat as well. This shouldn't be surprising. Given tighter stocks you'd expect them to be in commercial hands for pipeline reasons but the pattern of disposition has changed a lot over the past 5-10 years."

Asked how they would improve the NASS survey, respondents said a review is first in order. Then an effort should be made to find out what, if anything, can be done to improve the methodology.

One veteran industry analyst, asked for his assessment, said: "I think the USDA has to do a better job at estimating all stocks and the usage. Stocks on farm, off farm AND in the pipeline (just get the inventory held by barge lines and rail on the quarterly stocks). Ethanol use: do not use an assumed yield of 2.7 gallons / bushel each year. Get an industry number and reflect that each quarter. Get feed use by the major hog, poultry and cattle users of actual tonnage consumed for corn, wheat, sorghum, barley, oats, etc, from major consumers. I am sure that is a lot of work, and with the budget crunch, I doubt if USDA will tackle the feed sector this time. But their estimates have become impossible to predict and have confidence in. There are wildly misleading feed use estimates by quarter -- up and down in wild moves. And, it's impossible to make sense of that data in 2009 and 2010 as well."

Note: It is important to again stress that NASS estimates are based on actual surveys, while the WAOB demand numbers are projections based on assumptions.


 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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