Accuracy of USDA forecasts of corn ending stocks
May 2014 WASDE
The analysis of forecast errors of year-ending stocks can be applied to the most recent forecasts contained in the May 9, 2014 USDA WASDE report. The report contained the first forecasts for the 2014-15 marketing year and year ending stocks were projected at 1.726 billion bushels. Historical forecast errors suggest that there is a 50 percent probability that actual year ending stocks will be between 1.251 billion and 2.027 billion bushels. There has been a slight bias towards over-estimating year ending stocks in this report in the past, with an average error of -42 million bushels. In addition, the May forecast this year includes a forecast of record high average yields and a year-over-year decline in consumption of U.S. corn. This combination suggests that actual year ending stocks will be smaller than the May forecast.
For the 2013-14 marketing year, ending stocks were forecast at 1.146 billion bushels. Historical forecast errors suggest that there is a 50 percent probability that actual year ending stocks will be between 1.121 billion and 1.267 billion bushels. There has been a slight bias toward under-estimating year ending stocks in this report in the past, with an average error of 49 million bushels. This bias seems to support the market's expectation that USDA has over-estimated marketing year exports, and therefore, under-estimated year-ending stocks. However, our previous analysis suggests that errors in forecasting year ending stocks late in the marketing year are more highly correlated with errors in forecasts of feed and residual use.
click image to zoom We further examined the errors in the May WASDE forecast (after harvest) of year ending stocks by examining the relationship of the change in the forecast from April to May with the error in the May forecast. That is, we calculated the May forecast error conditional on the change in the forecast in May. Those results are summarized in Figure 3 where the change in the forecast of ending stocks from April to May (after harvest) is plotted on the horizontal axis and the error in the May forecast is plotted on the vertical axis. The predominance of observations above the horizontal axis verifies the tendency for USDA to under-estimate year ending stocks in May. The positive relationship between the change in the forecast in May and the error in the May forecast, however, indicates that an increase in the forecast of ending stocks in May tends to be associated with an under-estimate of year ending stocks and a decrease in the forecast in May tends to be associated with an over-estimate of those stocks. While the fit is not great, the relationship is interesting. The relationship supports the concept that the USDA tends to "smooth" the changes in the projection of year ending stocks through the forecast cycle. This is not surprising since similar results have been reported previously for USDA corn production forecasts.