When USDA announced changes in its crop reports last week, Agriculture Secretary Sonny Perdue boasted that modern technology ensured everyone had equal access and a level playing field when it comes to tapping USDA’s major market reports.
Yet, earlier this year, Perdue said poor internet access is one of the worst problems in rural America.
DTN has been asking more questions about what drove the decision to eliminate us and several other news agencies from early access to major crop reports such as the monthly World Agricultural Supply and Demand Estimates. DTN also has been questioning the market benefits by taking away early reporter access.
DTN is one of a handful of news services that have attended the lockup for more than a decade to provide thousands of market-driven customers the latest world supply and demand estimates in a swift, readable format once USDA allows news outlets to transmit that data.
Everybody, according to USDA’s new plan, will just go to USDA’s website at 12:00 p.m. Eastern Time and download key market reports such as the monthly World Agricultural Supply and Demand Estimates (WASDE).
“Everyone who has interest in the USDA reports should have the same access as anyone else,” Perdue said about the change in crop report procedures. “Modern technology and current trading tactics have made microseconds a factor. This change addresses the ‘head start’ of a few microseconds that can amount to a market advantage. The new procedures will level the playing field and make the issuance of the reports fair to everyone involved.”
Last January, USDA and Secretary Perdue released the results of a Trump administration study, the “Interagency Task Force on Agriculture and Rural Prosperity.” Perdue said at the time the lack of rural broadband is the “one overarching challenge that we must overcome to ensure rural prosperity.” The task force’s first recommendation was to expand e-connectivity in rural and tribal areas.
The issue of bad internet access in rural America was effectively dismissed by USDA leaders who believe that everyone will have “equal access” to crop reports at 12:00 p.m. ET on report days.
According to a Federal Communications Commission report on broadband earlier this year, 30.75% of Americans in rural America and 35.4% in tribal lands lack access to broadband internet, defined as 25 Mbps. That compares to 2.1% of Americans in urban areas. Dozens of U.S. senators and some trade associations have argued the FCC is actually low-balling just how poor internet access is in rural America.
USDA made its change in report access for the Aug. 10 WASDE and Crop Production reports because of what USDA officials point to as a two-second volume of trade that happens right at noon Eastern when the crop report is released. That’s become part-and-parcel of the high-frequency trading game, and USDA offered no explanation how exactly that would change by sending everyone to a USDA server at 12 p.m. Eastern to get the crop report.
Last week, the November soybean contract at 11:59 a.m. EDT had 222 contracts trades. At exactly noon EDT, the volume spiked to 3,140 contracts traded with a 10-cent price spread that ranged from $8.42 1/2 to $8.52 1/2. Over the next 20 minutes, the range of contracts moving fluctuated from a few hundred to nearly 2,000 contracts before prices settled. By 12:30 p.m. EDT, trading had settled down to a few hundred contracts and the price settled at $8.46.
HIGH-SPEED TRADE WILL CONTINUE
USDA, questioned about the new report policy, told DTN, “Evidence suggests that clients of news agencies receive faster access to USDA data than the public.” The inference is that without the headlines and keywords that early access by media creates, high-frequency trading and the profits made from it will end.
The Congressional Research Service says high-frequency traders employ a range of tactics that may have nothing to do with actual numbers in a crop report. In an April 2016 report on high-frequency trading, the non-partisan CRS highlighted aggressive trading strategies meant to generate profits on spreads and rapid trades. Those included “order anticipation” and “momentum ignition” strategies. The CRS report noted, “In fact, corn, the largest grain futures market, averaged more than five such events per year over the last five years,” according to comments by former CFTC Chairman Timothy Massad. At the time, Massad noted these increased flash events would continue in commodities.
Joseph Janzen, a professor of agricultural economics at Montana State University, said it’s unclear whether high-frequency traders are moving based on rapid headlines or if some simply start momentum strategies in the milliseconds following report release time to quickly move the market the way they want. There hasn’t been enough study done on high-frequency traders to understand motivations at these firms, Janzen said.
He added that there are a growing number of firms focused on high-frequency trades. These companies are trying to make money on fractions of pennies instantaneously on the market.
“For anyone who has some sort of automated or algorithmic trading system where they are essentially letting a computer trade based on some instructions, how USDA puts out the report is meaningless,” Janzen said. “It doesn’t matter.”
Janzen added, “I see sort of the motivation that one way to access the report is the most fair, but some traders will have a speed advantage. We know that and there are guys who will have made the investment to get a speed advantage. That will always be the case.”
READY FOR THE LOAD?
USDA maintains that it is improving its ability to provide the information to the public, handle the increase in load volume on its website, and keep the data secure. But USDA officials gave no details on what they’ve done to stress-test their system, nor when that work was completed.
While high-frequency traders will change their game, more than 4,000-plus local grain elevators and thousands more brokers, farmers and livestock producers are going to be searching for that WASDE data on USDA’s website while often relying on internet service that Secretary Perdue says isn’t good enough for the modern world.
Angie Setzer, known on Twitter as @GoddessofGrain, lives in Iowa but works for a Michigan grain company. Setzer typically gets her WASDE information directly off USDA’s website after seeing early flash data come across Twitter just after the report is released. She then attempts to pull the actual report off USDA’s website. Setzer has a problem downloading that data off USDA’s website “just about every time I do it.”
“I would say nine times out of 10 I’m not able to access the actual website info for a couple of minutes, at least,” Setzer said. “It’s almost a guarantee I’m not going to get it right away. Twitter is actually faster than using their website.”
“You already see the market react prior to the report coming out. Now it will be even further because everyone will be trying to access it,” she said.
Chris Clayton can be reached at Chris.Clayton@dtn.com