Mecardo Analysis - It’s been a long ‘holiday’ but the USDA will be back
- By: "Farm Tender" News
- Cattle News
- Jan 30, 2019
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By Andrew Whitelaw | Source: CME, USDA.
The longest running government shutdown in the history of the United States, lasting a whopping 35 days. A fortnight longer than any previous shutdown. This left 100’s of thousands of government workers without pay. Now that the shutdown is over (at least temporarily), the USDA is back in action. In this analysis we take a look at what the impact of the USDA reports have on pricing levels.
There are always concerns and debates around the accuracy of USDA and other government forecasters, however they do provide a starting point for the industry to utilize for decision making.
In this report we are looking specifically at the USDA crop production and stocks report, to gain an understanding of how the market has reacted to the reports. This reaction provides an insight into the importance of the reports, if they truly weren’t important the market would not react.
The grain stocks report provides data on holdings of grain both on and off farm. It is released every quarter. In figure 1, the change in price (US¢/bu) is displayed from the opening to the close of trade on the day of release of the report. As we can see, the price reaction has become increasingly volatile since the turn of the century.
The crop production report provides datasets on acreage and yield where applicable. This is released on a monthly basis and provides an overview of the US. The reaction to the crop production report shows a similar trend to the stocks report (figure 2).
In table 1, the standard deviation for each decade is shown for both reports. The range of price reaction has increased dramatically across in the current decade. The biggest reaction range however is seen in the stock report.
There are arguments that the change in price on the day is rudimentary as it does not show the intraday movement of price. During the day after a release the change in price can and does move in a much bigger range. However, the end of day price gives a truer representation of how the market has reacted once all the ‘noise’ is removed.
Key points
* The government shutdown is over which means the USDA is back to work.
* Many commentators disparage the use of the USDA data, however the market reacts strongly to their releases.
* The reaction to USDA reports has increased during the past two decades.
What does this mean?
It is clear from these charts that the market reacts to the USDA reports, and this reaction has been heightened since the start of the century.
The first set of USDA reports which were delayed due to the government shutdown will be released shortly. After a long delay, will see the market overreact to any new data?
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