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All Eyes On March 31 USDA Report

Questioning what the USDA report said is a fairly common response to the monthly data.

The USDA report said what? Surely you’ve heard that question following the release of monthly/quarterly/annual USDA data. Or, maybe that has been your response.

The truth is, farmers love to hate the USDA data, especially when it makes the grain market move away from their trade positions.

On March 31, the USDA will release its annual U.S. Planting Intentions Report. This is just one of the few select reports that has the capability to move the farm markets. The early expectations have U.S. farmers planting about 500,000 fewer acres of soybeans (82.2 million) vs. a year ago and about 1.7% more corn acres totaling 89.5 million vs. 88.0 million in 2015.

Other big USDA reports that can create market movements include each month’s Supply/Demand Reports that include ending stocks estimates, the four Quarterly Grain Stocks Reports, and the June 30 U.S. Acreage Report.

The Grain Stockpiles Report, for example, uses data from surveys conducted the first two weeks of the month prior to the report, according to the USDA. About 83,000 farmers are surveyed for the quarterly report and asked to provide total quantities of grain stored on their farms on the date of the report (March 1, June 1, September 1, or December 1).

For the off-farm survey, about 8,600 grain facilities with about 11 billion bushels of storage capacity are asked what they have on hand on the day of the report, the USDA reports.

“Reports of stock holdings are normally received from operations covering about 90% of the capacity,” according to the USDA. “Estimates are made for missing facilities to make the survey complete.”

Oft-maligned revisions can be made in subsequent reports or those released a year later to compensate for late reports, errors detected in reporting or calculations, or when production estimates are revised, which makes some growers, traders, and analysts skeptical of the original data.

In what may come as a surprise, however, the rate of error is quite low, the USDA says. The variability is a mere 1.5% for corn, 1.8% for soybeans, and 2.5% for all wheat.

“This means that chances are approximately 95 out of 100 that survey estimates for stocks will be within plus or minus 3% for corn, 3.6% for soybeans, and 5% for all wheat of the value that could be developed by averaging the estimates produced from all possible samples selected from the same population and surveyed using the same procedures,” according to the agency.

That compares with relative standard errors of 9.5% for sorghum, 4.3% for barley, and 3.6% for oats, USDA data show.

Before each report, newswire services survey a handful of marketing analysts to get a feel for what estimates the trade expects the USDA to print.

As a result, the analysts’ consensus can sway the markets direction ahead of the report day. Traders and farmers try to anticipate the USDA estimates by placing trade positions. When report day arrives and the USDA goes against the grain (no pun intended), the farmers’ sentiment on the validity of the government’s data can turn negative or worse.

Farmer Reaction

Recently, farmers in the Agriculture.com Marketing Talk discussion group shared their varying perspectives of the USDA reports and their impacts on the markets.

WCMO, a Missouri farmer, is willing to give the USDA the benefit of the doubt. “I suspect that the USDA essentially does what we really think it should be doing. Sometimes, it just doesn’t appear that way,” WCMO states. 
“The USDA reports tend to build in things that influence prices negatively based on projections, yet tend to make adjustments that influence prices positively based mostly on proven facts,” WCMO say. 

“For example, it might take a nearly perfect growing season to achieve record-high yields, yet nearly perfect growing seasons are not normal growing seasons. When excessive moisture or drought threatens potential yields, there seems to be more of a lag in the adjustments to the projections.  Still, the market seems to act pretty much in similar fashion. It takes continuous good price news to move the markets up, yet a break or lack of the good price news is enough to move the markets down,” says WCMO.

Perhaps one example that farmers offer in the online discussion thread highlights the group’s skepticism. It revolves around the USDA’s historical accuracy of annual ‘final ending stocks estimates’ compared with the government’s first-of-the-year projections released in January.

For soybeans, over the past 34 years, the U.S. January ending stocks forecast has been below the final estimates eight times and above the final estimates 26 times. 

For corn, over the past 34 years, the U.S. January ending stocks forecast has been below the final estimates 20 times and above the final estimates 14 times.

“For me, that implies a long-term historical price bias lower for soybeans (January report influencing lower prices than final number would imply) and higher for corn (January report influencing higher prices than final number would imply),” WCMO posts in the Marketing Talk discussion group. 

Midwestern farmer roarintiger1 is less lenient on the government agency, holding a more jaded perspective of the reports. 

“When there is a bad weather year and obvious lower crop supply, the USDA can pull numbers from the previous crop year and borrow numbers from the next crop year to lessen the severity of the market gains,” roarintiger1 states in the online discussion. 

“Likewise, when there is a good crop year and a plentiful supply, USDA is seen as supplying farmers with insurance and disaster payments. The USDA has the formula for an inexpensive food supply in the United States,” roarintiger1 says.

TRADE REACTION

“When I see a USDA report on the calendar, I always get geared up for it, because that’s what’s going to move the markets,” says Jon Marcus, president of Lakefront Futures & Options in Chicago.

“Whether you take it with a grain of salt or take it as gospel – and I’m thinking fewer people take it the second way – they’re the numbers you have to work with,” says Marcus. 

“If you don’t believe them or you think they’re too high or too low or that the government is crazy or whatever, they’re doing the best job they can, and those are the numbers that we, as investors or hedgers, have to work with,” he says.

Love them or hate them, until a better way of collecting data arrives, the USDA data will be the standard for the markets, defenders say.

Marcus encourages farmers not to get caught up in the backyard mentality. 
“You can just see your field and sometimes not even all of it. So you could have an incredible crop, but you have to realize that it’s a big country. No one person is able to do what the USDA does,” Marcus says.

USDAReportHitsAndMisses

The above charts show how often in the past 34 years the USDA’s beginning-of-the-year corn and soybean ending stocks estimates have been above or below its final estimates.

Tony Dreibus also contributed to this article.

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