Do we really need USDA’s data collection?

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Farmers who believe USDA should not be in the business of collecting statistical information about agriculture and then disseminating it to the rest of the world are getting a chance to see their wishes come true. The shutdown of the government has already halted the USDA’s Market News Service that reports daily prices from every possible commodity and market location. That, in turn, has caused disruption in some futures contracts that are based on price indexes established by the cash prices, which are not being collected. And if the shutdown flows into the weekend, the October 11th Crop Production and Supply Demand Reports will likely have to be delayed, since the crop enumerators will have been on furlough, and not in the field collecting crop data. We’re coming close to finding out what it would be like to not have the data collection and sharing.

After taking hundreds of farmers through the USDA lock ups to watch the process of assembling spring acreage reports, the August First Crop Report, Grain Stocks Reports, and Quarterly Hogs and Pigs reports, there were always some vocal skeptics who expressed their opposition to the concept of having to report their crop data and then letting the market trade it. To them, “It just is not American!” Most were convinced otherwise by the cadre of leaders and statisticians with the National Agricultural Statistics Service, who were always quick to say that if the USDA did not provide that service for everyone, farmers and the market included, and then only the market could afford to collect its own data that would not be shared with farmers.

Kansas State University marketing specialist Dan O’Brien makes a similar statement when he postulates what might happen if USDA reports were sharply curtailed, as they are now with the government shutdown. He says:

1) Grain producers and users would be paying a much more attention to basis and cash price trends at various upstream and downstream locations in the U.S. and world grain marketing system – along with any arbitrage opportunities that may exist from transportation of grain.

2) The market would also be more closely attuned to grain futures carrying charges and the general structure of futures prices as signals of whether to hold and store grain or to “sell now”.

3) Technical market analysis would probably be relied upon more heavily – as ag producers with crops to sell turn as well as users of grain with needs to fulfill would be looking wherever they can for guidance on what to do to fulfill their respect needs.

He says currently the USDA “crowds out” other data collection firms, which would spring up and fill the void if the USDA was not there.  But there would be a host of different companies providing different services, in different areas, and their collective data could not be reconciled or merged to provide a single database that would be available for historical comparison.

O’Brien adds, “To the degree that grain markets would be more vulnerable to the withholding of cash price or local production information by major local/regional market participants – then market performance and efficiency could suffer.” And he questions that while the void would be filled by small private firms, would the “public good” that USDA serves ever be filled for the benefit of small to medium-sized farmers.

Agreeing with O’Brien is Farm Progress economist John Otte who says, “An extended government shutdown will introduce inefficiencies in the agricultural commodity price discovery mechanism. Sketchy data on cash market prices will diminish market transparency. Futures traders will have more difficulty getting reality checks from cash market transactions.” He says farmers will be able to use futures and options, but without the timely data from USDA, when would you really know to do that?

Otte believes that without the USDA’s regular data collection, basis relationships will deteriorate and uncertainty would drive cash prices lower, causing producers to re-evaluate their risk management strategies. He says the threat of delivery with a futures contract would always cause futures and cash to converge, regardless whether one was too low or to high.

But Otte says lean hog futures and feeder cattle futures would be in trouble. The lean hog futures settle against a two-day moving average which is calculated from data collected by USDA. The feeder cattle index is based on a seven-day moving average also collected by the USDA. With the shutdown of the Market News Service, those indexes cannot be calculated and the futures contract does not have a basis for value.

Otte quoted agricultural marketing consultant Michael Cordonnier who said if you do not know the data, you sit on the sidelines. Farmers who need to market a crop to make a cash rent payment by the end of the year can hardly afford to sit on the sidelines.

Summary:

With the halting of government operations, the USDA data collection process is also halted and that will prevent dissemination of that data as well. The lack of certain information can be disruptive to the markets, creating problems for those who buy and sell with futures market trades. Farmers may also have problems determining the timing of their marketing decisions without good knowledge of the supply and demand for commodities. While the USDA shutdown will hopefully not be long, the data collection and dissemination hiatus is a good indication of what would happen should the service not be available as opponents have suggested.


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farmer50    
iowa  |  October, 04, 2013 at 08:25 AM

So now we won't have the government daily tell us that we are having record acreage and record yeilds, so how is the shut down supposed to prevent us from marketing?

farmboywy    
wyoming  |  October, 04, 2013 at 10:51 AM

Where the rubber will meet the road is when USDA cash market reporting is used to settle futures, i.e. feeder cattle, etc. Also, what about market price determinations for Revenue Protection crop insurance policies?

Daniel    
texas  |  October, 04, 2013 at 11:52 AM

I raise lamb and rely on direct sales to get beyond the break even point. Usda sales reports are very important for determaning my priceing. The current problem, for us, is we are developing some value added products and can't modify our ingredients til they are back in business. So much for small business startups!

michael    
kansas  |  October, 04, 2013 at 01:24 PM

Weaning ourselves from historically inaccurate, misleading and manipulated Government Program Dependency WILL be painful and disruptive. There's no doubt about it, but it will be a great benefit in the long run. What other US Businesses are as Dependent on and Controlled by political appointees in a Government Agency as Agriculture? And how do those who are NOT, manage to stay in business in their markets? There ARE other privately owned and industry controlled solutions and we need them. It might, ultimately, be wise for us to consider who exactly the current system benefits most, and it is not Producers, but those who buy, process, export and distribute. They and the CME are who profit most and find this tax paid Government service of the greatest value. Let's work hard to end this and find alternatives.


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