Missing Reports

This week’s article (below) comes from Dr. Brenda Boetel at the University of Wisconsin-River Falls. I have lightly edited it to add more information. I found it to be an interesting example of the value of information. In the senior-level Commodity Futures Marketing course I teach at MSU, we spend a few weeks discussing how markets work and what it takes to ensure they are efficient. One necessary ingredient is information. All of the good things that come from competitive markets rely on a substantial amount of readily and commonly available information. Long periods without information is more likely to lead to more volatile markets. 

Last week appeared to bring no movement toward a resolution regarding the partial government shutdown. As such, several reports were not available, including the World Agriculture Supply and Demand Estimates (WASDE), Quarterly Grain Stocks, and weekly export sales. Next week will see the absence of the Livestock Slaughter and Cattle on Feed report, and if this shutdown goes into February, the January Cattle (Inventory) report will be affected.

The markets will continue to make assumptions about the content of these missing reports. The longer the lack of information prevails, the greater the market correction may be when the reports resume, especially if the reports say something different than the market assumed. The cattle markets care about last week’s missing reports because they gave the final information on the size of the 2018 corn harvest, the speed in which corn is being used, and the first hint of information regarding how many acres of each crop will be planted in 2019. The market is trading on old-information, a less-than-desirable situation.

The WASDE report likely would have shown a decrease in 2018 corn yield. Additionally, poor harvest conditions affected acreage as well as yield. The USDA would likely have lowered 2018 corn production from 14.626 billion bushels to around 14.545 billion bushels. The February report will begin to adjust the demand side of the equation and examine more closely whether usage estimates for ethanol or exports needs to be adjusted.

Corn demand appears to be strong, with exports appearing to be greater than USDA expectations and feed and residual usage likely up. Ethanol production has been low, but strength in other usage likely makes up for the lower ethanol production. The overall impact of these demand factors would likely have USDA keep usage constant in February.

As the year progresses, we will need information on acreage intentions to get a glimpse into long-term corn prices, but for now, expect corn price to continue to behave seasonally and increase until mid-April/early-May.