The Commodity Futures Trading Commission has apparently asked USDA for a timeline on the announcement Tuesday about the BSE cow in California.

Good. CFTC is the regulator that would be charged with finding out who got wind of the upcoming announcement to get in front of the futures panic.  We don’t know if any laws were broken, but it’s good the regulators are looking.

At the least, we should know how the leak happened. I would hope USDA has its own investigation underway. Again, the agency should make sure such leaks don’t give insiders a chance to bilk the unwary.

Hold on. Before you read the blog below, realize that the beef industry’s issues management team was NOT in the official loop. It turns out their preemptive efforts—the getting ready for the announcement—was based on the same "rumor" that the futures traders were acting on. The rumor was based on a leak, of that there seems no doubt. The beef stakeholders weren’t officially notified until 3 p.m., well after the futures market crashed.

My mistake, evidenced below, is that it turns out there weren’t nearly as many people in the official loop as I thought. I presume that when I asked the USDA official I talked to on background if stakeholders knew in advance and he replied in the affirmative, he meant the 3 p.m. conference call and I meant before the leak. On the one hand, I’m sorry to hear that USDA doesn’t realize the importance of working with the industry to minimize panic, but on the other hand, it means our guys weren’t the leakers.

I’m waiting for a callback from USDA and if it turns out such isn’t so, I’ll file an update later. But meanwhile, I wanted the clarification online.

Before we get into this rant, consider the story in the Washington Post this morning about how the beef industry’s quick response helped allay the damage from the latest BSE scare.

I just love the beef issues management team. They’ve saved our hides several times. I will grant that their response matters more to the well-being of the industry than my rant about insider trading.

BUT:
USDA goes to a lot—a LOT—of trouble to protect the markets from insider trading on crop reports and things like the cattle on feed report. They brag, in fact, of the iron-clad security that precedes precisely timed reports.

That’s good. Lots of times, an early heads-up on a key report would be worth millions to traders with inside information, and those millions would come out of the pockets of those without the insider information.

But there is no such safeguard with things like Tuesday’s announcement that a California dairy cow had been diagnosed with BSE, even though everybody knew the news would break the market. Nobody who knew in advance should have been allowed to trade or talk to traders.

But somebody did. By noon the "rumor" was out and those in the know were going short at the expense of those who weren’t in the know.

That is not good. It is not fair. If I’d had some yearlings going through the sale ring about 1:30 when the buyers’ cell phones rang, I’d be plenty miffed.

I know, I know. There is a big difference in the two types of releases. I sure don’t want USDA just suddenly announcing they have a BSE case without warning the stakeholders like the beef industry’s issues management team. That team did a bangup job—again—on backfiring this thing. They couldn’t have done it as well without advance knowledge. That’s more important than a few bucks won and lost in Chicago.

But I presume somebody, some of the scores of folks who knew the announcement was coming, called a buddy and spilled the beans. The buddy made a lot of money (at least short-term, though we can hope the late session and Wednesday rally taught him a lesson)

The larger point is this: Had this been a more serious problem—an FMD outbreak for instance—the board might have locked down—or up—for days on end. USDA needs a system to safeguard this stuff. I don’t know how you do it and keep everybody in the loop, but I might start by requiring them to sign privacy pledges and promising that leaks would be traced and prosecuted. In the Army, we had a thing called "need to know" and we weren’t allowed to tell guys secret stuff unless they had the proper clearance AND had a specific need to know. And once they knew, they were bound by the same rules.

The fewer people who know a secret, the easier it is to trace a leak.

As it stands, the Commodity Futures Trading Commission could probably identify some suspects. (CFTC reminds me they neither confirm nor deny investigations.) But I doubt there was anything illegal done.So far as I know, there is no law against some state vet calling his brother in Chicago with the tip nor with the brother making use of the tip.

But there should be, and I’d hope USDA and the industry will give it some attention.

For a long time, I’ve been arguing that another case of BSE in the U.S. herd would be a non-event. Now that USDA has confirmed a case of—importantly—atypical BSE in a cow from a California dairy (of course, he interjected snidely), we’ll find out.