When do the USDA forecasters make mistakes?

This study analysed forecasts for all US corn, soya bean and wheat categories published within the World Agricultural Supply and Demand Estimates (WASDE) reports over the 1987/88 through 2009/10 marketing years in an attempt to identify patterns and better understand when the USDA forecasters make mistakes. Two general sources of errors were investigated: behavioural and macroeconomic factors. The first objective was to examine how these factors affect the size of the forecast error and the second concentrated on the direction of the error due to these effects. Our findings suggest that the largest increase in the size of USDA forecast errors was associated with structural changes in commodity markets that took place in the mid-2000s. Corn, soya bean and wheat forecast errors also grew during the periods of economic growth and with changes in exchange rates, while inflation and changes in oil price had a much smaller impact. With respect to behavioural sources, we identified patterns consistent with leniency and pessimism across different categories. Predictability of forecast errors based on the information available at the time the forecasts are made provides evidence of inefficiency and suggests that these forecasts may be improved using the findings of this study.