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Abstract

The USDA’s forecasts for net farm income are important inputs for businesses, legislators, economists, and other policy-makers. While the USDA has been providing forecasts for net farm income for over 50 years, they have not been rigorously analyzed in regards to bias and efficiency. Here, the USDA’s net farm income forecasts from 1975-2015 are evaluated along a number of dimensions. The results show that the USDA’s initial forecasts for net farm income are downward bias. This bias is corrected as the forecasts evolve through the year. Moreover, upward revisions tend to lead to negative forecast errors or overestimates. Consistent with that finding, there is a tendency for reversals in the forecasts. That is, upward revisions tend to be corrected in subsequent revisions. Despite these inefficiencies, the forecasts provide remarkably good directional guidance by predicting growth or contraction correctly over 80% of the time. There was no evidence that forecast accuracy improved through time or with the availability of ARMS data.

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