Letter from Langdon: Is USDA Reporting the Price, Or Setting It?

If the U.S. government routinely predicted new car prices for the coming year, Detroit would scream bloody murder, saying the feds were interfering in the market. But when the U.S. Department of Agriculture does the same for crop prices, everyone thinks it’s normal.

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With all the talk about privacy and protecting data, it’s hard to believe we have data pirates right here in our own government. But they only spy on some of us while others are immune.

For instance, here’s a press release that might be useful to have in your hand the next time you’re shopping for a television. But this is a government announcement you will never see:

New data from the U.S. Department of Commerce shows Walmart has a massive oversupply of flat screen TVs. Commerce’s head statistician Sid Sappington said the TV glut was “big, really, really big.”

“Without drastic discounts to prices, U.S. retailers have no hope of selling these electronic devices in the current market,” Sappington said.

As a result of these inventories, flat screen TV prices will decline to less than 50% of prices quoted in 2014.

Shopping for a car? Here’s another government press release that would come in handy if you’re haggling over price. But we’ll never see this coming out of the federal government:

Department of Transportation statisticians today revealed that new-car inventories in the United States have reached record highs, just as even more cars, trucks, and SUVs hit showroom floors for the 2017 model year.

Based on numbers just turned in by new car dealers as part of the congressionally mandated inventory-reporting survey, there is one new car on hand for every man, woman, and child in the U.S.

With Asian automobile surpluses also on the rise, car manufacturers are headed for many unprofitable years and continued consolidation. Experts say the market is set for a sharp downturn this fall with new cars being held in surplus for the next several years, or until popular demand catches up with supply.

Obviously reports like these would create big problems for electronics and automobile manufacturers. They would howl in protest, and Americans would think they were right to do so.

Now, here’s a real news story about the U.S. Department of Agriculture’s recent predictions for crops that won’t be harvested until later in the year:

USDA blew past trade forecasts with a record corn crop yield and soybean yield in numbers released Friday.

Here are the key numbers.

Brace yourself for a record year. USDA on Friday forecasted a 175.1 bushel per acre yield, which would best the previous record of 171 set in 2014. Total production is estimated at 15.2 billion bushels, which would also be a new record. USDA also boosted ending stocks, increasing 16/17 ending stocks to 2.409 billion bushels.

Beans, too, are expected to produce bumper crop, with USDA estimating a new record yield of 48.9 bushels per acre and record production of 4.06 billion bushels. USDA raised 16/17 ending stocks for soybeans slightly, to 330 million bushels.

Wheat production, too, is up, with USDA forecasting a 2.32 billion bushel all-wheat crop and yield of 54.9 bushels per acre. Wheat ending stocks remain high, at 1.1 billion bushels for the 16/17 crop.


A chart from the USDA's August 16, 2016 Feed Outlook projection. The chart ran in the paragraphed with the subhead "Corn Use Projected Higher With Lower Price Outlook."
A chart from the USDA’s August 16, 2016 Feed Outlook projection. The chart ran in the paragraphed with the subhead “Corn Use Projected Higher With Lower Price Outlook.”

And the USDA doesn’t do this just once a year. Reports like this come out about crops and livestock, exports, estimated use – you name it – every month, all year long.

Privacy and personal data, my eye.

My life as a farmer is an open book.

So ask yourself, if you were a farmer, what would you do about selling your crops, when government reports can predetermine the price you’ll get? Small wonder farmers and their advisers routinely use gambling terms like “fade the report” or “hedge your bets with futures and options.”

But what happens when USDA puts me out on a limb only to saw it off when they’re wrong at guessing my crop size?

Generally, if USDA misses and predicts lower crop yields than actually occur, they “find” some unsold stocks from the past. Add that newly “discovered” inventory to what comes out of the field that year. What do you know? The original prediction is back on track. Or if the actual crop is bigger than predicted, they may say exports are going to climb, which pulls the real inventory back down toward the predicted level. Nothing really changes. The grain market has already created its perceptions of huge supply and slow demand based on what the government says, regardless of why they said it.

Take this year for instance.

In mid-August USDA said we were headed for the biggest corn crop ever. Earlier reports had already set the stage and prices were at five-year lows. Then a private crop tour of Midwestern corn fields found all that glitters is not golden corn, but mud puddles. Wet weather wreaked havoc in corn fields with drowned out plants, and then more weather in the form of heat and high winds either shrunk corn kernels or broke off immature stalks of corn so that big fields didn’t equal big yields.

But regardless of what USDA said and whether they were right or wrong, the damage to corn markets was already done. The market expected lower prices and paid accordingly. Farmers who didn’t want to gamble on even lower prices sold what they had and took their losses.

Hopefully some of them hedged their cash-sale bets in the futures market, giving them the chance to make more on their corn crop if prices rise down the line. But futures is a cash-hungry beast that can eat through a farmer’s bank account faster than a cornstalk borer in July. The trade refers to that outcome as “long and wrong.” Even if the market recovers, which ought to give the farmer some extra earnings, he can still be wrong. Just like high-stakes poker, even with a winning hand you must have the cash it takes to call. That’s why most farmers fold and lose their futures bets too soon, because they lack cash for margin calls, or steely nerves to ride it out.

Like a friend once told me, the best way to make a little money in futures is to start out with a lot of money.

It’s funny, not funny haha but funny strange, that as big corporations take more control of livestock markets, reporting becomes less an issue. And sometimes even when prices at the farm gate go down, retail prices for things like pork or beef barely budge. A few years ago when hogs were reportedly worth as little as 5 cents per pound, according to USDA, and independent hog growers were going broke because big meat packers were killing their own hogs instead of buying in open competitive markets, I went to the store to stock up on ham and bacon. But what I found on the retail end was prices pretty steady with what they always are. The same thing has been true of beef, with grocery retailers collecting in a few days more than what farmers and ranchers get after spending close to three years raising beef from conception to finished animal.

In all fairness, USDA reported that, too. But as the government reports and oversees, little is done to change things. It’s like having the traffic cop stand at an intersection with his arms at his side as people and cars run into each other.

It’s reassuring seeing him there, but he isn’t much help.

But back to this year’s corn crop. If it’s true that USDA missed the mark and corn prices threaten to go higher, farmers could have a chance to recover from earlier low sale prices. But they shouldn’t wait too long to cash their bets, because the first USDA report on 2017 prospective planting intentions (USDA’s guess of what farmers will grow) is due March 31, 2017.

It should be very informative, and really, really big.

Richard Oswald is fifth-generation farmer and president of the Missouri Farmers Union.


Topics: Ag and Trade

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