The past couple of USDA reports have sent prices soaring—and caused headlines such as "Corn, soy, wheat seen higher on surprise USDA report" (Reuters), "Surprise! Surprise! What Happened to Corn?" ("The Farm Gate," University of Illinois), and "Acreage Surprise" (PFG Best).
There are several reasons for the market’s surprise:
- There are many new traders and other participants in the commodity markets and not all understand agriculture—or how USDA does its estimates.
- Something may have happened that changed the market after USDA did its surveys—acreage this year is a good example. USDA’s Planting Intentions surveys were based on farmers’ plans. Mother Nature meant some of those plans didn’t become reality.
- USDA’s surveys are based on samples and sampling errors do happen. However, the samples are large—in some cases 15,000 to 25,000 farmers—so these errors are small.
- Market participants have to understand which categories are surveyed and which are derived. For example, following the June Grain Stocks report, many argued that the feed, seed, and residual category is too high for the number of livestock eating feed. However, this is a "default" category. USDA takes its survey of grain stocks, subtracts reported exports, estimated ethanol use, etc. and what is left over goes into the feed, seed, residual category. There is no measure of these uses.
"It’s not that they make mistakes and it’s not that there’s some collusion or ulterior motive," says Jerry Gulke of the Gulke Group. "I have met with the top people at USDA and discussed their methods. There isn’t a straighter, more honest or earnest group of people. A lot of it really falls back on us farmers. If we overestimate yields, say, then our yields don’t make that much, it’s not USDA’s fault the numbers change."
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