The recent U.S. government shutdown stopped the flow of information that normally is available from the U.S. Department of Agriculture (USDA). The lack of regular USDA information impacted the behavior of agricultural markets and its participants. Fortunately, the government shutdown only lasted for a short time, but it was long enough for most cash and futures market traders to realize how dependent our marketing system is on the regular flow of independent information.
The USDA market information and outlook forecasts make an easy target for marketing analysts and farmers because they often question and sometimes criticize the information contained in key reports. However, we often do not think about what might happen if this information was not available “free of charge” to the general public. In reality, no information is free, and there are significant tax dollars spent every year to collect the data, analyze figures and report findings. However, these costs are paid for by all U.S. taxpayers, not just those who directly use and benefit from the information.
Why does the USDA spend so much time, effort and money to prepare publically available information? The simple answer is that the USDA is there to help the people who buy and sell agricultural products, such as input suppliers, farmers, grain elevators, food processors, exporters and importers, make more informed decisions and help agricultural markets operate more efficiently.
It is commonly recognized that information has value. If one trader has timelier or more accurate information than other traders, the individual with better information can use it to his or her advantage. For example, if a corn exporter knows that corn yields across the U.S. are higher than is believed by corn importers, the exporter potentially can sell corn for a higher price than if everyone had the same information. The exporter would benefit from the more accurate information if a sale were made. However, what happens if the importer does not buy any corn because the price is too high to be competitive? The shared benefit from the trade would not take place because of inaccurate information and an export sale would be lost.
The weekly Export Sales Report, typically released every Thursday by the USDA Foreign Agricultural Service (FAS), is one of the key reports that were missed during the three-week government shutdown. During this time, exports of major agricultural products continued and the mandatory reporting requirements were met, but none of the export sales data was compiled and released. Importers took advantage of this lack of information to make larger than expected purchases of corn, soybeans and wheat. Typically, prices increase when a large export sale is made and reported by the FAS. However, because there was no public reporting of any export sales during the shutdown, prices did not respond until after the reports became public and everyone became aware of the amount sold. In this case, the importers may have benefited from the information gap.
The October World Agricultural Supply and Demand Estimates (WASDE) and Production Report also were not prepared and released because of the shutdown. Both of these reports are watched closely by many sectors within agriculture and are used to set expectations about current and future production and use and price levels for major agricultural commodities.
However, there are private firms that prepare similar estimates. Some firms, such as large grain merchandizing companies, prepare and use their own estimates for internal use only. Other firms sell their information and estimates to clients who do not have the time or resources to prepare them.
Many of the companies that prepare their own estimates use the USDA’s information as a reference to cross-check their numbers or as direct input into their own analysis process. For example, a private grain merchandizing company may prepare yield and total production estimates for the major crops it trades by contacting farmers and grain elevators across its trade territory. However, the company may not have contacts in every state or every growing region and may not be able to gather yield information for all of the crops it merchandizes. The USDA production reports can be used to double-check their own yield estimates and fill in any missing information from other states, regions or even countries.
Why are the USDA WASDE and other production reports needed if private companies are preparing similar reports? One of the main reasons is to provide all market participants with accurate information so they can make better decisions and plan for the future. Another advantage is that the methods used by the USDA to forecast or estimate yields, acreage, total use and prices are well-documented and publicly available. Most private companies do not release the methods they used to establish their estimates and forecasts.
Many of the benefits created by the USDA reports and analysis are indirect and can be difficult to trace. It’s not until we don’t have access to this information that we realize how many different people and organizations use and rely on this information. Would agricultural markets stop working if the USDA information were not available? No, but these markets may not work as smoothly.
The people and companies that do not have access to timely and accurate information or cannot afford to pay for this information will be at a disadvantage, compared with those who do. In addition, trade only takes place when both parties can benefit from the exchange. Some trades may not take place because of poor or incorrect information, so the benefit to both parties is lost. Consistent and timely USDA reports increase the chances that mutually beneficial trades will occur and that these trades will be equitable.