SA Graan Januarie 2018

Januarie 2018

RELEVANT

Understanding USDA crop estimates

and forecasts

ach month, the United States De-

partment of Agriculture (USDA)

publishes crop supply and demand

estimates for the United States of

America (USA) and the world in the World

Agricultural Supply and Demand Estimates

(WASDE) report.

These estimates are used as benchmarks in

the marketplace because of their compre-

hensive nature, objectivity, and timeliness.

The statistics that USDA releases affect

decisions made by producers, businesses,

and governments, by defining the funda-

mental conditions in commodity markets

worldwide. However, when using USDA

statistics and especially crop estimates and

forecasts, it is helpful to understand the

role of the different institutions involved,

the methodology and the process.

How WASDE reports are

prepared

The role of the WAOB

The World Agricultural Outlook Board

(WAOB) is a unit of the Office of the

Chief Economist (OCE) of USDA (see also

Figure 1

). OCE advises the Secretary of

Agriculture on the economic implications

of policies and programmes affecting the

USA food and fibre system and rural areas.

The WAOB was created in 1977 to serve as

the focal point for economic intelligence on

the outlook for USA and world agriculture.

Prior to 1977, responsibility for USDA's food

and fibre outlook information was fragment-

ed among several agencies.

While these agencies' missions did not

change, the board was created to co-ordi-

nate USDA's outlook analysis and assure

its accuracy, timeliness and objectivity. The

board co-ordinates, reviews, and approves

the monthly WASDE report.

WAOB’s senior commodity analysts also

chair the monthly Interagency Commodity

Estimates Committees (ICEC) meetings. The

board also houses OCE's Joint Agricultural

Weather Facility (JAWF).

JAWF monitors global weather and assess-

es its impact on foreign crop conditions and

potential yields.

The role of the ICEC

A consensus or ‘interagency’ approach is

used to arrive at supply and demand es-

timates. The monthly ICEC meetings are

comprised of representatives from several

key USDA agencies. These agencies in-

clude:

The National Agricultural Statistics Ser-

vice (NASS) which estimates and fore-

casts USA crop production based on

data collected from farm operations and

field observations.

The Foreign Agricultural Services

(FAS) which provides information re-

garding foreign production, use and

trade. FAS gather global market intel-

ligence from its network of agricultural

attachés. This information is assem-

bled and reviewed in FAS headquarters

by commodity and trade analysts and

circulated to all participants in the in-

teragency process. Satellite imagery is

interpreted to assess foreign crop pro-

duction potential.

The Economic Research Services (ERS)

identifies the most important econom-

ic effects and implications for prices,

quantity supplied and quantity de-

manded. This may include information

on such diverse factors as exchange

rates, oil prices, the effects of domestic

and foreign agricultural policy, and eco-

nomic growth. ERS analysts routinely

interact with analysts in the FAS.

The Farm Service Agency (FSA) de-

scribes the current policy environment

and particularly how producers likely

will react to current legislation. FSA em-

ploys econometric models, tempered

by specialist expertise. This activity in-

volves considerable interaction with

ERS.

The Agricultural Marketing Service

(AMS) provides current price and mar-

keting reports for crops and livestock.

AMS marketing specialists monitor

markets in action on a daily basis and

share observations with USDA analysts

department-wide.

This broad information base is reviewed

and analysed by ICEC members who bring

diverse expertise and perspectives to the

report. To arrive at consensus forecasts,

alternative assessments of domestic and

foreign supply and use are vetted at the

ICEC meetings.

Throughout the growing season and after-

wards, estimates are compared with new in-

formation on production and utilisation, and

historical revisions are made as necessary.

The commodity

balance sheets

The WASDE reports reflect a full balance

sheet for each commodity and country. This

broad commodity coverage allows analysts

to reconcile changes among commodity

balance sheets. For example, in order to

estimate world soybean supply and de-

mand, separate balances are prepared for

90 countries.

Separate estimates are made for beginning

stocks, imports and prospective produc-

tion to determine the total supply of a crop

that will be available for the new marketing

year. The demand side of the balance sheet

reflects domestic use, exports and ending

stocks. Domestic use may be further subdi-

vided to the extent that such data are avail-

able from other sources.

The balance sheet disciplines individual

estimates as such that total supply must al-

ways equal domestic use plus exports and

ending stocks. Prices tie both sides of the

balance sheet together by rationing avail-

able supplies between competing uses.

Prices also shape planting decisions for the

out-year, providing a link between current

and future years.

The process of forecasting price and bal-

ance sheet items is a complex one involving

the interaction of expert judgment, com-

modity models, and in-depth research by

department analysts on key domestic and

international issues. This process plays out

each month in ICEC.

Critical supply and demand relationships

change over time as policies and structure

change. A quality departmental forecast-

ing process requires a strong research pro-

gramme to ensure that understanding of

markets keeps up with changing conditions.

USDA analysts are responsible for keep-

ing the department’s information base and

models abreast of changing market rela-

tionships. Research conducted by ERS is a

critical part of the process of maintaining

the quality and objectivity of departmental

supply, demand and price estimates.

The forecasting cycle

Supply and demand estimates are forecast

on a marketing-year basis. The marketing

year for each crop usually begins with the

DR DIRK ESTERHUIZEN,

senior agricultural specialist, USDA – Foreign Agricultural Service, USA Embassy, Pretoria