APHIS: Not Much Transparency on Market Leak
May 21, 2012
USDA is busy trying to figure out how to handle announcements of market sensitive releases in the 22 hour trading day. I hope while they are figuring, they will include market-sensitive releases from APHIS and other agencies as well.
I know the guys involved in the BSE case are busy. But that doesn’t mean somebody at USDA shouldn’t be able to find a few minutes to pay some attention to the way somebody in USDA apparently leaked the California BSE cow to futures traders, who promptly broke the market at the expense of the unaware.
It’s pretty clear what happened on the day of the announcement. A few minutes after an "internal" announcement, futures traders knew that the agency planned an afternoon BSE press conference. It’s hard to know where the leak came from. The California lab knew they had a potential positive when they sent it to the national lab four days before the announcement. So a leak could be at one of the labs. It’s possible that the leaker was somebody else who knew before the internal announcement. USDA—wisely, I would argue--shares the secret with droves of stakeholders before its official announcement, to help them prepare for the firestorm of publicity that follows such news.
I’ve heard lots of rumors about where it leaked. But as near as I can tell, I’m the only one even asking USDA about it. The guys at CFTC asked for information on how the release was handled, but I doubt there is anything they can do about it. It’s not illegal for people to use insider information such as this in the futures market. So even if CFTC finds how it happened (and they don’t comment either way on possible investigations) they’re not the ones to patch the leak.
The leaks should be patched by USDA. But if there is any interest in the agency, I failed to find it.
Incredibly, there is, no—zero—control on how the information is handled. Unlike other market-sensitive USDA reports, APHIS—which is run by public service veterinarians with little experience in the cattle business—apparently doesn’t think insiders trading on their inhouse knowledge is a problem worth worrying about. At one point, speaking on "background" as if I were asking for nuclear codes or something, one of the people in the agency’s public information office’s told me "we’re looking into it." But he wouldn’t offer details and I found no more signs of it.
At another point, I got a timeline. An "internal announcement"—to whom, I don’t know—was made at 11:12 a.m. on the 24th. Within minutes, the futures board was crashing. The agency had to move the announcement forward. If something like that happened before a grain crop release, USDA would be on it like hump on brahman. And rightly so.
But if anybody at APHIS cares, they kept it from me. "Their hands are full," a USDA press representative told me.
I want to be clear and fair about this: USDA did a good job of managing reaction to this latest BSE foible. Thanks to them, NCBA and the checkoff-funded issues management team, the media seemed generally well-informed this time. Good job. I’m not suggesting that finding—or more importantly, plugging—the leak is the most important bolt in the APHIS machine. But it’s a loose bolt and every loose bolt should be tightened.
The last thing I heard from the press office was that APHIS "would get back to us" if they decide to do anything.
They don’t think it’s important.
I could point them to some cattle feeders who do—especially one fellow I talked to who tells me he thought the limit-drop in the market that day was "just one of the funds pulling out or something," since there was no visible logic behind the fall. So he, a straddler like most feeders these days, lifted his short positions only to find out later that the guys in Chicago were reacting to the insider leak from APHIS. If the market hadn’t recovered some before the close, there would be more such stories. As it is, most of the cattle feeders I’ve talked to seem disinclined to raise a stink about it.
Nobody got badly hurt this time. But next time, it could be far worse. There are things that APHIS might one day announce that would lock the board down for days. APHIS has great planning processes. Goodness. Go look at their Procedure Manual for BSE surveillance at www.aphis.usda.gov/animal_health/.../BSE_Procedures_Manual.pdf. There are like 41 pages of carefully forethought procedures. But not one word about keeping it quiet. It’s like they never thought of this maybe breaking some poor unawares hedgers—and it could
APHIS should, along with its veterinary-centric plans about isolating this, depopulating that and tracing that other thing, include confidentiality agreements with everybody—from lab technicians to agriculture secretaries--who is privy to such information.
I’ve granted this is not the most pressing issue on APHIS’ plate. But it should be taken seriously nonetheless. If that’s happening, their PR staff is doing a good job of hiding it from me.