Sources of Errors In USDA’s Net Cash Income Forecasts

This study evaluates the accuracy of net cash income (NCI) forecasts and its components in order to track down the main sources of errors in NCI forecasts over 1986-2017. Specifically, we examine the bias as well as the correlation between errors in net cash income forecasts and in forecasts of its components for each forecasting horizon. Our findings suggest that long term NCI forests underestimate the official estimate. Crop receipts forecasts appear to be the main source of this bias as underestimation in crop receipts persists throughout the forecasting cycle. The main contributors to NCI forecast errors are errors in expenses and in crop and livestock receipts. Errors for all components except farm related income tend to decline over the forecasting cycle. There is not much evidence of forecast errors becoming larger or smaller over time. These findings identify potential areas for improvement in USDA’s NCI forecasts.