Using USDA Production Forecasts: Adjusting for Smoothing

Agribusinesses, producers and farm managers rely heavily on forecasts made by the U.S. Department of Agriculture and other government agencies in forming expectations that drive management decisions. While agency forecasts are a valuable and low cost source of forecast information, it is commonly thought that these agencies may unintentionally make gradual adjustments to their forecasts. In other words, agency forecasts may be “smoothed†such that they slowly evolve toward a rational forecast. In this paper, we investigate forecast smoothing in the USDA’s cotton production forecasts and demonstrate how forecasting practitioners and farm managers should correct the forecasts.