Cornhusker Economics: How Accurate are Crop Forecasts?
Commodity prices are determined by the dynamics of supply and demand and they oscillate over time according to expectations of market participants, who form and update their outlooks based on new information available in the market. As new information about supply and demand of commodities becomes available, buyers and sellers review their beliefs and trade in the market accordingly. This process of price discovery is crucial for various business decisions in the agricultural sector, such as production, marketing and risk management. For instance, if new information on supply and demand suggests that corn prices will decrease, grain producers might want to choose a risk management strategy that protects them against falling prices.
Public-available crop reports are one of the main sources of information about underlying supply and demand in many agricultural markets. Government agencies, such as the United States Department of Agriculture (USDA), collect and analyze data on crop supply and demand, and then distribute their results and forecasts to all market participants. The World Agricultural Supply and Demand Estimates (WASDE) report is prepared and released by the USDA every month, and it is the report most commonly followed by grain market participants. The WASDE publishes data on supply and demand for corn and soybeans (along with other commodities) in the United States and other countries.
Keep reading in Projecting Corn and Soybean Crops: How Accurate Are Crop Forecasts?, in the June 14, 2017 Cornhusker Economics.