Comments by Daniel O’Brien – Kansas State University
(All opinions are those of the author and not necessarily those of Kansas State University Agricultural Economics)
Re: The Long Run Impact and Industry Response to Sharply Reduced USDA Grain Market Information
Australian Wheat Harvest – 2010 (Source: http://oklahomafarmreport.com/wire/news/2010/)
Following are some thoughts on what the state of grain market industry information would look like in the future if there were either “no” or a “sharply limited” number of USDA reports to rely on from the USDA National Agricultural Statistical Service (NASS), Agricultural Marketing Service (AMS), Economic Research Service (ERS) and the like.
First and foremost, grain producers and users would be paying much more attention to basis and cash price trends at various upstream and down stream locations in the U.S. and world grain marketing systems – along with any arbitrage opportunities that may exist from transportation of grain between points. The market would also be more closely attuned to grain futures carrying charges and the general structure of futures prices as signals of whether to hold and store grain or to “sell now”. And in the absence of public grain supply-demand information, technical market analysis would probably be relied upon more heavily – as ag producers with crops to sell as well as users of grain with needs to fulfill would be looking wherever they can for guidance on what to do to fulfill their respective grain marketing information needs.
Also, it is likely that additional private analysts of U.S. and world crop prospects would spring up to take advantage of the need for market supply-demand information that is now provided by the USDA. At this time it can be said that private firms are now likely “crowded out of the market” to some degree by the USDA – but would find opportunities for profitably supplying this type of information in the vacuum left by reduced USDA information availability.
A whole host of private “cottage industries” may likely spring up in various major U.S. crop producing states – generating local-regional crop rating and development information to fill the information need that the USDA now provides with its crop progress and condition reports. And this would be done for a profit motivation, with individuals & firms competing for the title of providing the best info to market decision makers. We would probably see these local “in the field” crop appraisal efforts supplemented by even more intensive use of private satellite technology to assess domestic and foreign crop development prospects.
It also would be of no surprise to see many of the people that are now employed by the USDA NASS, AMS, ERS and other agencies in high demand in private industry to “show the way” in how to collect, analyze, and provide the flow and type of crop information needed by U.S. agriculture to make pricing and risk management decisions.
The likely downsides of a sharp reduction in USDA grain market information over time would be that what is now a “public good” available to all regardless of economic means, i.e., access to grain market information from the USDA, would very likely become to a significant degree a “for fee” enterprise that not all U.S. grain producers would likely be able to pay for and therefore have access to. To remedy this problem, it is possible that we would see the commodity futures exchanges (CME, MGEX, etc.) eventually bring together resources to cover the need for public information. This happens in other countries (South America for instance). However, it still seems that the availability of domestic and international market information to all market participants regardless of economic means would be reduced – even more than may be the case in some instances in markets at this time.
Also, the long term historic high quality data set that is heavily relied upon by the U.S. and world agricultural sectors for market perspective and analysis of the relative impact of ag market factors on price prospects would be discontinued or curtailed. If this were to happen, there would be an intense effort to “bootstrap” and/or “jackknife” together the old USDA data sets with the new private industry consensus forecasts that would likely become available. However, in the transition from public to private information, the reliability of market information and therefore of market decision making would suffer – with the possibility of greater grain market price volatility and uncertainty.
In the bottom line, U.S. agricultural decision makers from farm to agribusiness would likely become all that much more dependent on the consensus forecasts available via the grain futures and cash markets for market information – increasingly looking to futures prices as a “consensus indices” of price prospects resulting from supply-demand forces in U.S. grain markets.
As a caution, to the degree that grain markets would be more vulnerable to the withholding of cash price or local production information by major local/regional market participants – then market performance and efficiency could suffer. The means of overcoming this vulnerability and helping market arbitrage to be all that much more effective would likely be the development of an even more voracious and aggressive set of private “in-the-field” grain market information entrepreneurs – seeking and finding the info “gaps” that may exist from time to time in local ag markets, and trumpeting them to the larger market (for a fee).
Grain Sorghum in the U.S. (source: http://southeastfarmpress.com/markets/us-sorghum-industry-trying-break-chinese-market)
In summary, the vacuum in local market information would likely eventually be filled by private means should the USDA’s grain market information function be done away with or sharply curtailed. However, the key question is the degree to which the “public good” which is now USDA grain market information would be adequately replaced and provided for medium to small agricultural producers here in the U.S. and abroad.
Extension Agricultural Economist
Kansas State University