Figure 1 presents the history of surprises for NASS implied usage estimates for corn over the 1990-2012 marketing years in chronological order. Note that a positive surprise implies that market analysts under-estimated usage (over-estimated stocks) and a negative surprise implies analysts over-estimated usage (under-estimated stocks). This figure highlights the sharp increase in the volatility of market surprises for implied corn usage that occurred since 2006. There were only 7 instances out of 64 over 1990-2005 where the surprise exceeded 5 percent. In contrast, over 2006-2012, there were 12 instances out of 28 where the surprise exceeded 5 percent. Furthermore, double-digit usage surprises occurred three times during 2006-2012 (-11.55 percent: June-August 2009; -12.13 percent: March-May 2010; -14.66 percent: December-February 2012), and each substantially exceeded the largest surprise observed over 1990-2005 (+7.78 percent: March-May 1995).
As a point of comparison, Figure 2 presents the history of surprises for NASS implied usage estimates for soybeans over the 1990-2012 marketing years in chronological order. The contrast in the pattern of implied usage surprises for soybeans across all quarters in Figure 2 with that of corn in Figure 1 is striking. There is little evidence that recent surprises in soybeans have been outside of historical ranges, whereas the evidence is overwhelming that surprises have been outside the historical range in corn.
Further insight into the pattern of market surprises in NASS implied usage estimates for corn is provided by Figure 3, which shows the surprises by marketing year for each year between 2007 and 2012. It is readily apparent from this figure that the most problematic surprises occurred in the 2009, 2010, and 2012 marketing years. Surprises for the other three marketing years were generally within the normal range of plus or minus 5 percent. Within the three problematic years of 2009, 2010, and 2012, there is also a clear tendency towards reversal of the surprises from quarter-to-quarter. The pattern was especially strong in 2009 and 2012 when the surprises swung back and forth from positive to negative each quarter.
In sum, one pattern is abundantly clear--there has been a sharp decline in analysts' ability to anticipate actual quarterly corn usage as implied by NASS Grain Stocks reports since the start of the 2006 marketing year. This has undoubtedly decreased confidence in the integrity of the underlying stock estimation procedures among at least some market participants. Since this pattern coincides with the era of tight supply and demand conditions and elevated grain prices that began in the autumn of 2006, there has been much discussion about how the two may be possibly related. While it is not surprising that market participants are highly sensitive to data on stocks when supply and demand conditions are tight, the mechanism that ties together these conditions and the decline in analysts' ability to anticipate NASS stocks estimates is far from obvious. Our analysis indicates that any explanation needs to satisfy at least four criteria to have credibility:
1) Why corn and not soybeans? The number and magnitude of surprises in the corn stocks estimates/implied usage must be explained in light of the absence of similarly large surprises in soybean stocks estimates.
2) Why 2006-2012 and not earlier? A notable increase in the volatility of market surprises in corn stocks estimates/implied usage was observed starting with the 2006 market year and the increase compared to earlier periods must be explained.
3) Why only in particular marketing years? The size and magnitude of surprises in corn stocks estimates/implied usage show large variation from year-to-year during 2006-2012 and tended to be concentrated in the 2009, 2010, and 2012 marketing years. The occurrence in certain years and not others must be explained.
4) Why a pattern of reversals during marketing years? The pattern of surprises in stocks estimates/implied usage within the marketing year during 2006-2012 must be explained, and in particular, the tendency toward reversals within the 2009, 2010, and 2012 marketing years.