Agriculture represents a key component of the commodities sector and overall U.S. economy. Investors seeking exposure to this sector are strongly urged to follow monthly crop production figures released by the U.S. government.
A quick glance at the data can yield valuable insights on the health and performance of agricultural goods.
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Introduction to the Report
The United States Department of Agriculture (USDA) produces a monthly report to disclose data on domestic crop production, providing up-to-date forecasts on prices, volume, quality, condition and other relevant market metrics. The report is released between the 9th and 12th of each month at 8:30 a.m. EST. For a complete schedule of upcoming reports, refer to the USDA website here.
The data, which are available on the website here, are presented as updated annual forecasts for the latest month. For example, the November 2018 report provides forecast annual production data up to Nov. 1, 2018. This figure is then contrasted with production figures over the same period last year.
The data are released in table format, allowing readers to evaluate monthly and annual trends on a national and state level. The following crops are covered in the monthly report:
Cottons and peanuts
Lentils, dry edible peas and Austrian winter peas
Sorghum and grain
Dry edible pea
Fruits and nuts
For each of the above, the USDA produces figures on the amount of crop harvested, yielded and produced for the current year. These figures are published alongside the previous year’s data to allow for easy comparison. Below is a snapshot of corn for grain data for Nov. 1, 2018:
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In this particular example, traders can compare this year’s corn-for-grain harvest to last year’s, and monitor the annual yield (expressed in bushel per acre) of this particular commodity. Overall production figures are also provided.
Any significant deviation between the 2017 and 2018 numbers could lead traders to conclude that the crop’s price will rise or fall depending on the direction of the change. It may also signal important weather-related patterns that influence crop production and yield. These factors are important for a market largely dictated by futures trading.
The chart breaks down corn production by state, focusing on the regions that produce the highest quantity of this particular crop. “Other states” where the crop is also produced is assigned its own category near the very bottom just before the national estimates are produced.
Traders who are looking for a high-level overview of national crop production, including major trends and themes, can focus their attention on the very first page of the report. Here, the USDA provides an overview of the major themes that emerged during that particular forecast period. For instance, the snapshot for November 2018 is provided below:
It’s important to note that monthly production forecasts are not revised; rather, a new forecast is issued each month throughout the growing season. According to the USDA’s statistical methodology, end-of-season estimates are provided after the harvest.
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To better understand the USDA’s forecasts, it’s important to consider the methodology of the monthly reports. Crop production figures are calculated by the National Agricultural Statistics Service (NASS).
Each outlook produced by the NASS has two components: acres to be harvested and expected yield per acre. For example, estimates on preliminary corn and soybean acreage are based on survey data collected in the first two weeks of June, whereas expected yield data are collected monthly between August and November. These timeframes may differ based on the commodity being surveyed.
Yield data are collected during the last week of the previous month as well as the first 2-3 days of the current month. For all intents and purposes, data on yield surveys reflects conditions as of the first of the month (i.e. Nov. 1).
The NASS assumes “normal weather conditions” for all crop production forecasts for the remainder of the season. According to the NASS’s official methodology, the organization “does not attempt to predict future weather conditions” and “long-range weather forecasts are not used in any forecast models.”
The Bottom Line
The USDA Crop Production Report is a valuable resource for futures traders with exposure to agricultural goods. The report also provides a good snapshot for evaluating the latest and most important trends influencing domestic crop production.
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