Darrel Good Cast Quotations

The USDA may want to consider expanding the scope of the subjective yield surveys it uses in making the forecasts in order to incorporate a wider range of market and industry participants.

The USDA generates crop production forecasts based on estimates of planted and harvested acreage and two types of yield indications -- a farmer-reported survey and objective measurements.

The June Grain Stocks report will provide the next opportunity to calculate the rate of domestic corn use. Whether or not these projections are changed in the upcoming report, the market appears to anticipate an eventual increase. Stocks of corn at the end of the current marketing year may be 100 to 125 million bushels less than the current forecast of 2.3 billion bushels.

The forecasting comparisons for soybeans were somewhat sensitive to the measure of forecast accuracy considered. One measure showed that private market forecasts were more accurate than USDA forecasts for August regardless of the time period considered. Another measure showed just the opposite.

The persistence of moderate to severe drought conditions in parts of Illinois, Iowa, and much of the southern Plains increases concerns about yield potential. As usual, forecasts of summer weather conditions are not consistent at this time.

Similar to corn, USDA soybean production forecasts had the largest impact on soybean futures prices in August, with recent price reactions appearing somewhat larger than in the past.

A stocks-to-use ration of 8.8 percent, then, means 2006-07 year-ending stocks of 1.047 billion bushels, implying a crop of 9.966 billion bushels. That is, the market appears to be trading a 2006 corn crop that is 1.146 billion bushels, or 10.3 percent, smaller than the 2005 crop. That calculation is obviously sensitive to the forecast of use. A smaller forecast of use implies a smaller crop and vice versa.

There appeared to be no trend in the size or direction of forecast errors over the study period.