Frequently Asked Questions

BEA’s GDP estimates reflect the effects of this summer’s extreme hot weather and drought in the Midwest on farm production. 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 gross domestic product (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 events such as this year’s drought. Some information, however, is available about the effects on crop inventories, and the following paragraphs summarize the source data, the adjustments, and the expected impacts on the crop inventory estimates based on the information that is available thus far.

The production of agricultural crops, such as corn and soybeans, is reflected in the expenditure-side estimates of GDP in the change in farm inventories. Annual changes in farm inventories of crops 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, BEA’s estimates spread the value of crop output 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 by BEA for estimating crop output and sales 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. The most recent farm income statistics were issued on August 28, 2012, and include a forecast of farm income for 2012, which forms the basis for BEA’s revised estimates of farm inventories and farm proprietors’ income that will be incorporated in the third GDP estimate for the second quarter of 2012 scheduled for release on September 27, 2012. The latest ERS estimate of the change in crop inventories for the year 2012 was revised down $11½ billion (in current dollars) from the farm income statistics that were issued in February. Based on this downward revision from the newly available ERS farm income statistics, BEA’s estimates of real crop output, of real crop sales, and of real crop inventories will also be revised down.

Because most of the ERS farm income statistics are annual estimates, BEA has 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. 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 expects to show a downward revision to second-quarter crop inventories due to the effects of the drought reflected in the ERS reports, with somewhat larger impacts anticipated in the third and fourth quarters.¹ Estimates of these impacts will be presented in the “Technical Note” that BEA issues concurrently with each of the quarterly GDP releases.

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.