Corn Futures Price Movements Just Prior to USDA Reports Raising Questions

October 13, 2012 01:26 AM

via a special arrangement with Informa Economics, Inc.

Corn futures trade saw sharp rise in prices seconds before USDA’s Oct. 11 reports

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Corn futures trade posted a sharp rise in prices just seconds before the 7:30 am CT release of USDA’s Oct. 11 Crop Production and Supply/Demand reports.

An examination of time and sales data from the CME Group reveals that electronic trading showed considerable volatility in the seconds leading up to the release of the data. Specifically, several hundred trades took place at 7:29:57 am – just 3 seconds before the reports’ release. The trades in that one second of time ranged from $7.39 to $7.53.

In the period leading up to that timeframe, futures traded in a range of several cents. Between 7:20 and 7:21 am CT, futures traded in a range from $7.35 to $7.44 with the period between 7:22 and 7:29 seeing prices in a narrower band of $7.35 to $7.39. But with three seconds remaining before the release time, the volatility increased dramatically as outlined above. And this pattern was seen solely in electronic trading.

In open outcry trading, prices opened at $7.38 at 7:20 am CT and there was one trade at 7:20:51 at $7.42 with the next trade showing at 7:30:23 at $7.55 and the next at 7:32:13 at $7.63.

USDA and the CME Group have already discussed the situation and indications are some additional checking may take place.

From USDA, officials say they have verified that the process of posting the reports to the Internet was initiated and completed after 7:30 am CT. The Supply/Demand report was out a few seconds after 7:30 am CT and the Crop Production report shortly after that, contacts advise.

In addition, USDA officials say they are unaware that any news services that are allowed access to the data within lockup transmitted any information prior to the release time of 7:30 am CT.

In years past, Internet connections in the news room located within lockup had been established one minute prior to the report release time. However, this process was put in place prior to "modern" computer network capabilities and the process was changed in 2010 to no longer allow that one minute time period before the report was released.

Single switch. Further, USDA contacts advise that while individual firms have their own internet connections in the report release room within lockup, those are all routed through a single switch.

As for the release of information from a Hogs & Pigs report on June 24, 2011, that was up to15 minutes in advance of the report release. USDA contacts advise that happened due to the failure of that single switch -- the situation has been addressed.

Regarding the Oct. 11 reports, USDA contacts have verified that the switch in the lockup news room was not "thrown" early.

The report release times are geared off of the US Naval Observatory Master Clock and the clocks within lockup are wired to a master clock. Further, the time is verified each time before lockup begins and was verified prior to the Oct 11 lockup.

The situation has set off considerable speculation as to what happened, including whether large computer-trading firms were able to access the data just seconds ahead of the release. However, with USDA officials saying they have verified their process of loading the report was not complete until after 7:30 am CT, that seems unlikely.

"What will really help try to determine what happened is whether this time of trade activity took place in the minute or seconds leading up to the September reports," said one contact.

Another long-time trade source simply said, "This could just be the growth in high-speed electronic trading and welcome to the electronic trading world. If this was a case of information being accessed early, it would suggest a market move linked more to the Supply/Demand report rather than production for corn since the corn crop was higher than the trade expected, but carryover was under what traders looked for." Others speculate this could merely have been a case where someone or several people opted to "bet" on the report.

But it still is raising several questions on the market-sensitive USDA data and there could be questions that may not get solid answers.


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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