Trader says USDA reports still important
(CME Group) Agriculture markets and market participants have grown very sophisticated over the years, with technological improvements and new ways to gather and use information, but the importance of statistical reports from the U.S. Department of Agriculture remain unchallenged.
"We look very closely at the USDA reports. Even with all the research and analysis that people do out there, no matter how good their numbers are, you still veer back to the USDA numbers as they're the official numbers," says Don Roose, President of U.S. Commodities.
The growing season kicks off at the end of March. Not because farmers are in the fields yet, but because USDA is slated to release its Prospective Plantings report on March 31. This report is USDA's survey of farmers' intention of what they are going to plant this year. It's the first glimpse of how many acres farmers will devote to crops such as corn, soybeans, soft red winter wheat and rice, among other row crops.
The Prospective Plantings data are important to the entire agricultural industry as they help agribusiness firms and other groups start thinking about a new growing season and the potential implications for supply.
Roose says the Prospective Plantings and its sibling report, the June 30 Acreage report, are two of the most important reports in the grain calendar. The Prospective Plantings report gives the first inklings of what farmers may plant; the Acreage report shows what farmers actually planted. Next, Roose says, the August monthly crop production report from USDA is the first survey-based report that details what the size of that year's crop might be at harvest.
After the annual reports, the quarterly stocks data is critical because it gives the trade an idea of how much supply is on hand as of a particular quarter and what that means for projected demand and price, Roose says. The quarterly grain stocks for the second quarter for corn and soybeans will also be released on March 31, as will wheat grain-stocks data for the third quarter.
The other monthly crop production and supply and demand reports "are little tweaks" to let the industry know the subtle changes in usage month after month, he says.
Helen Pound, senior futures market specialist at KCG Futures, says she looks at the USDA reports as one piece of the large puzzle that influences price.
"Reports might have you take some profit, or you may wait and see how the market reacts," she says. "Maybe you take profits on the ideas this report is as bullish or bearish as it can be. Or if it's something out of left field it may reorganize what you are doing.
"From a trader standpoint, from someone who used to stand in the pit, you look at the market as a whole. If it's trending to a new level and we know the fundamentals, then you might buy a break out. But if it's in a range, there's no way you'd buy a break out, unless something new came around," she says, and that something new can be USDA data.
Pound says for her research, when it comes to USDA reports, the most important data set is the weekly export sales report, which usually comes out on Thursday. That report lists what countries are buying U.S. grain or are cancelling orders. The report details the crop year for the sales or cancellations, either for supplies on hand or for the crop that's still growing. It also includes year-to-date sales and how sales are compared to previous years.
She also finds the monthly supply and demand reports important to get a sense of what supply-to-usage ratios are for the various crops, both for domestic demand, but also for foreign countries. The data for non-U.S. countries is in the monthly world agricultural supply and demand estimates (WASDE) report. Just as USDA lists the crop size and demand for the U.S., it also does so for many key producing and consuming countries, including Brazil, Argentina, China and Australia, among many others.
"I divide the countries into importers and exporters because I want to see whether or not they have a good cushion," she says.
That gives her an idea of what supplies are like in each country in case geopolitical flare ups change international food trade and possibly affect prices.
In addition to the annual acreage reports, monthly production, supply and demand reports and the weekly export sales data, USDA also releases information during the growing season for the major crops so the industry can get a snapshot of plant health. Those reports are the weekly crop progress reports and usually come out on Mondays from spring to fall.
Roose says if there are complaints about USDA's data, it might be that sometimes they're a little behind in their estimates. "For instance, they were a little behind in lowering the size of the Brazilian soybean crop. But they catch up. They always do," he says.
When USDA throws a curve ball, such as when the data in a particular report is much higher than expected, or much lower, it can roil the market and affect traders' positions. In the past this has led to various gripes, but Roose says, the data will eventually bear out. That's because USDA does several reports that look at the size of the crop, the quality of developing plants and domestic and international supply and demand. All of those reports reconcile with each other to account for any discrepancies, Roose adds.
While plenty of private firms do their own research, the industry falls back to USDA as the having the final say.
"We do our own research here, like others, but they have more people doing these reports than anyone else. And they're unbiased," he says.
© 2014 Rural Radio Network. All rights reserved. Republishing, rebroadcasting, rewriting, redistributing prohibited. Copyright Information