By Brianna Gwirtz, OCJ field reporter
The U.S. Department of Agriculture’s (USDA) Long-Term Agricultural Benchmark Projections give farmers, agribusinesses, and policymakers a 10-year look at the future of agriculture and global trade. Researchers at the Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES) recently examined the informativeness and accuracy of these projections, which many rely on to make business and government policy decisions.
The Farm Income Enhancement Program studied more than two decades of baseline projections and actual realized values of key agricultural indicators to determine the accuracy of the projections. Examples of indicators included commodity prices, yields, farm income, acres harvested, etc.
Their studies focused primarily on numbers for corn and soybeans, two crops prevalent in Ohio.
The results suggest that most baseline projections are only informative for the future out to four or five years. However, the report shows that some projections are quite accurate for an extended period. For example, corn and soybean yield projections are accurately predicted nine to ten years into the future. On the contrary, more volatile figures, such as projections for the price of corn or soybeans, are only useful for the future up to one or two years.
“The findings of our study inform both the users of the baseline data and the agencies producing these projections,” said Ani Katchova, Farm Income Improvement Chair in Agricultural Policy, Trade and Marketing. “Informativeness testing enables market participants to reliably use projections for their decision-making.”
Baseline projections are used to estimate expenditures for various Farm Bill programs. They are also used to shape the federal budget.
“As the conversations about the next 2023 Farm Bill begin, the baselines will play a role in shaping the discussion, particularly around the recovery from the pandemic,” Katchova said. “Therefore, evaluating the accuracy and informativeness of the baselines is important for users of these projections and for future revisions of the models generating the baselines.”
Katchova says baseline projections are not the same as short-term forecasts. While short-term forecasts are largely affected by shocks in the market, projections are created on specific assumptions.
“We primarily want to educate stakeholders on the use of projections as they are designed, as projections into the future based on conditional scenarios,” Katchova said.
Baselines provide a neutral conditional scenario, making them ideal for evaluating alternative policies. Katchova hopes her team’s findings will also allow farmers to use the baseline projections with confidence.
“Farmers can feel good about focusing more on future years using the projections,” Katchova said. “For example, a farmer could determine which future crops to plant over many years based on acres harvested and baseline yield projections.”
Katchova’s team, which includes PhD students Siddhartha Bora, Rabail Chandio and Kexin Ding, hopes other economists will be inspired to take a closer look at the baseline projections.
“Despite their importance in the development of agricultural policy in the United States, agricultural baselines are not rigorously evaluated in the literature. Our studies aim to fill this gap,” Katchova said.
The researchers also made recommendations and suggestions on how to improve the models and processes used to produce the projections.
The study reports can be read and downloaded from the Farm Income Enhancement Program website, aede.osu.edu/programs/farm-income-enhancement-program/publications.
The baseline projections for 2022 are published on the USDA’s Economic Research Service website.