WASDE: Market impact and accuracy; Oh, really?
Data use errors:
The agricultural economists say, “The third source of forecasting errors may stem from the data forecasters use. Most fundamental models of commodity prices rely on uncertain estimates of independent variables, and errors in those variables may cause errors in price and ending stocks forecasts.” They pointed to a pecan export forecast that was in error because of data processing errors. And since the market’s attention is fixed on carryover stocks, the economists report, “Due to the residual nature of ending stocks (total supply less total use), errors in ending stocks forecasts can be tracked down to their sources by regressing ending stocks forecast errors against the errors in all supply and use categories.”
They found that, “Analyses of data-related sources of error reveal that errors in ending stocks forecasts are mostly driven by errors in production forecasts across all commodities. Among use categories, corn feed and residual, soybean crushing, and wheat export errors have the biggest impact on endings stocks errors. Errors in price forecasts are caused by errors in U.S. ending stocks forecasts for all commodities and total use forecasts for soybeans and wheat.”
The ag economists studied all of WASDE’s reports on corn, soybeans, and wheat which comprise 90% of total US grain and oilseed production, and they added, “Knowledge of supply and demand forecasts accuracy is important because these categories serve as building blocks for price forecasts. Furthermore, supply and demand estimates are published within a set of other forecasts in WASDE reports that have been shown to affect the markets.”
So, with the next WASDE report being released June 12, the university ag economists say their findings can be used by the market to interpret the USDA data, if the market is fully aware of the flaws and inefficiencies in USDA forecasts or adjust for those.
USDA’s monthly reports on World Agricultural Supply and Demand Estimates (WASDE) have been shown to have an impact on the commodity market because of the importance of the information. However, the reports also have some accuracy issues, based on the personal biases of estimators, their incorporation of macro-economic data, and data processing errors. If the market is aware of those errors, then adjustments can be made.