Improving ERS Net Cash Income Forecasts using USDA Agricultural Baseline Projections

The USDA Economic Research Service's (ERS) farm income forecasts play an important role in decision making and planning across the agricultural sector, yet recent studies suggest that their initial farm income forecasts are biased. This study examines the degree to which the initial forecast of net cash income and its components can be improved using information from USDA 10-year agricultural baseline (AB) projections. We apply several forecast evaluation tools to a unique set of ERS forecasts, AB projections, and official estimates from 1997 through 2019. Our forecast-encompassing tests show that the AB projection provides important information for predicting livestock receipts, direct government payments, farm-related income, and cash expenses. Our findings are potentially useful for both ERS forecasters and a variety of farm income forecast users.