Last Thursday’s USDA Quarterly Stocks and Prospective Plantings reports were released in the middle of the trading day. Farmers and grain merchandisers say this is something that needs to stop. For decades, USDA reports were released before the market opened or after trading had stopped. With the advent of 24 hr a day trading that is becoming impossible. Last week the government took the unprecedented step of releasing the data right in the middle of the market session, sparking a sharp market reaction that caught most farmers off guard. Jim Riley said the market reacted so quickly farmers had no chance to react, “Many of them lost a lot of money because they did not have time to out of the trades they were in.” Riley, an independent broker based in Brookston, IN, said he only had a few minutes to try and contact customers before the corn market went lock limit down.
Mike Silver, with Kokomo grain, told HAT that even commercial elevators could not react fast enough, “Even if you were typing in an order on a computer, you did not have enough time to get your trade in.” He said farmers who were trying to call in orders on the phone were hopelessly behind the market action. Cody Bills, with Grain Hedge, a firm that specializes on on-line trading, said the numbers from USDA were such a surprise that there was no time to analyze the situation and take steps to protect yourself.
Silver said electronic trading has all but destroyed traditional market analysis, “With computer trading, the order is placed and executed in a matter of micro-seconds. It definitely changes the dynamics of the market.” Large commodity funds that use computer trading almost exclusively were caught out of position by the bearish USDA reports last Thursday. This triggered an automatic and almost instantaneous sell off that sent the corn market crashing to limit losses within a matter of minutes. Riley said almost everyone in the industry was caught by surprise but, with the report coming while the market was active, no one had a chance to reevaluate their position before prices crashed to limit losses. Exacerbating the situation was the fact that the market was closed on Friday. This has extended the market’s reaction into Monday’s and Tuesday’s trading sessions.
Silver would like to see the USDA change the policy on releasing reports while the market is trading, “I would like to see us to back to the traditional release times, while market was not trading.” Riley said new CME trading hours that will go into effect this month will present an opportunity for a better time to release the data, “The new hours will offer a 45 minute downtime in the afternoon. I would like to see them move their release times to that window.” Riley was also critical of the CME for allowing funds to get so large they can disproportionally impact the market.