BEA's gross domestic product (GDP) estimates reflect the effects on farm production of the extreme hot weather and drought in the Midwest that occurred during the summer of 2012. For the most part, these effects are embedded in the regular source data that are used by BEA. Where they are not, BEA prepares adjustments to account for the effects.
Among the expenditure-side components of GDP, the drought directly affects the estimates of the change in farm inventories (a component of the change in private inventories) and indirectly affects other components of GDP, such as personal consumption expenditures and exports. Because many of the effects are in the source data but are not separately identified, BEA does not attempt to quantify the total impact of such events. Some information, however, is available about the effects on crop inventories. The following paragraphs summarize the methodology BEA uses to estimate crop production and inventory change and the source data that underlie the estimates.
The production of agricultural crops, such as corn and soybeans, is reflected in the expenditure-side estimates of the GDP component, change in farm inventories. Annual changes in crop inventories are estimated as crops harvested in the year and available for sale, less crops sold in the period, plus net Commodity Credit Corporation (CCC) loan transactions. Because crop production takes place throughout the year, even if crops are harvested only once a year, the value of crop output is spread throughout the year. Thus, for each quarter, the change in farm inventories of crops is calculated as the estimated crop output allocated to that quarter, less crops sold, plus net CCC loan transactions.
The regular source data used to estimate farm output and income are the U.S. farm income and wealth statistics, which are published by the Economic Research Service (ERS) of the U.S. Department of Agriculture three times a year. These data form the basis for BEA’s estimates of farm output, sales, change in inventories, and farm proprietors' income. Because most of the ERS farm income statistics are annual estimates, BEA used other ERS reports to adjust the quarterly pattern of crop output to reflect the timing of the effects of the extreme hot, dry weather in the Midwest during June and July of 2012. In particular, based on the pattern of revisions to projected corn and soybean output shown in the monthly issues of two ERS reports, Feed Outlook and Oil Crops Outlook, BEA estimated negative impacts on crop inventories for the second, third, and fourth quarters of 2012.1 Estimates of these impacts were presented in the “Technical Note” that BEA issued concurrently with each of the quarterly GDP releases.
Additional information about the methodology used to estimate the impacts of the 2012 drought, is available in the box “Effects of the 2012 Midwest Drought on the NIPA Estimates” in the December 2012 Survey of Current Business.
1BEA used a similar procedure to adjust the quarterly pattern of the 1993 floods and drought; see “Impact of the 1993 Floods and Drought,” Survey of Current Business 73 (September 1993): 2.