Accuracy of USDA forecasts of corn ending stocks
The magnitude of marketing year ending stocks may be the single most important factor that summarizes the price implications of the U.S. corn balance sheet. While there are obvious limitations to the explanatory power of a single price factor in a market in which price is determined by the dynamics of a number of supply and demand factors, the corn market clearly reacts to the USDA forecast of marketing year ending stocks contained in monthly WASDE reports. Given the importance of those forecasts, it is useful to examine the accuracy of the forecasts. In addition there has been considerable discussion of the corn stocks estimates in the most recent May 2014 WASDE report, with many analysts arguing that the old crop estimate was too low and some arguing that the new crop estimate was too high. Here, we summarize the accuracy of the forecasts of marketing year ending stocks of U.S. corn for the 1990-91 through 2012-13 marketing years and discuss the implications for the May 2014 WASDE ending stocks estimates.
The marketing year for U.S. corn extends from September of the year of harvest through August of the following calendar year. The USDA issues the first WASDE forecast of marketing year ending stocks in May before harvest. Those forecasts are updated monthly in WASDE reports released between the 9th and 12th of each subsequent month. The official estimate of marketing year ending stocks is contained in the USDA Grain Stocks report released at the end of September in the year after harvest. As a result, there are 17 monthly USDA forecasts of marketing year ending stocks that begin in May of the year of harvest and ending in September of the year after harvest. Forecast errors are calculated as actual year ending stocks minus the forecast of those stocks so that a positive difference represents an under-estimate by the USDA and negative difference represents an over-estimate.
click image to zoom Figure 1 summarizes the accuracy of each of the 17 monthly forecasts of ending stocks for the 23 years from 1990-91 through 2012-13 using box and whisker plots. For each month the box represents the range of forecast errors in the 25th to the 75th percentile of all errors over the 23 year period. That is, the middle 50 percent of the forecast errors were within the range represented by the box. Fifty percent of the errors occurred outside the range of the box and the whiskers (lines) represent the maximum forecast errors for each month over the 23 year period. As an example, the middle 50 percent of the errors in the forecasts released in May before harvest were between an over-estimate of 475 million bushels and an under-estimate of 301 million bushels. The maximum over-estimate was 1.268 billion bushels and the maximum under-estimate was 1.371 billion bushels. As would be expected, the forecasts tended to become more accurate through the forecast cycle as more and more information about crop size and consumption became available. Still, surprisingly large errors were experienced late in the forecast cycle.