Magazine article Amber Waves

Emergence and Impact of USDA's WASDE Report

Magazine article Amber Waves

Emergence and Impact of USDA's WASDE Report

Article excerpt

The collection, analysis, and reporting of commodity market information by USDA, in place for 150 years, serves an important function in the marketplace. Accurate data about the situation and outlook for agricultural commodities improve the efficiency of the production and marketing chain, helping farmers, ranchers, agribusinesses, and governments make informed decisions. The availability of data on crop conditions, supply forecasts, trade, and inventory levels the playing field for producers, merchandisers, and consumers of agricultural products by reducing informational disparities.

USDA's premier situation and outlook report, World Agricultural Supply and Demand Estimates (WASDE), draws together domestic and foreign supply, demand, and trade data for key U.S. commodities. WASDE is published before the opening of major domestic futures markets between the 8th and the 12th day of each month. Many market observers watch the report closely and consider it a benchmark due to its comprehensive nature, objectivity, and timeliness. For this reason, USDA is careful to prevent pre-release of the information in the report, confining those involved in its overnight creation to a "lockup" environment until formal publication of the report at 8:30 a.m. on the release date.

Still, private agricultural information services have improved over time, leading some in the industry and academia to question the value of USDA's information-reporting program. To determine its usefulness to the market, ERS researchers analyzed the reaction of commodity market prices to 350 WASDE reports published over the 30-year period 19812010. Specifically, ERS measured the impact of USDA's situation and outlook information on commodity prices for three commodities in three different markets: cotton on the IntercontinentalExchange (ICE), soybeans on the Chicago Mercantile Exchange (CME), and wheat on the Kansas City Board of Trade (KCBT).

Emergence of the WASDE Report

One year after USDA was established by President Abraham Lincoln, the Department published its first monthly statistical report on crop conditions during the Civil War in 1863. Soon after, the Department added livestock statistics. As communications technology improved over the late 19th century, USDA sought even faster ways of disseminating its commodity data and analysis to market participants, using a telegraph wire service to transmit information to the press and commodity exchanges. By the early 1900s, USDA had released its first planting intentions report and crop production forecasts.

Although the Department understood that commodity markets reacted to its crop and livestock information, the process for creating reports at that time was not well-guarded. In 1905, an insider trading scheme came to light: one of three USDA employees involved in creating the cotton acreage report had leaked advance knowledge of its contents to an outside accomplice by tampering with a window blind. The accomplice used that inside information to place profitable speculative trades but unwittingly exposed details about the plot after publicly complaining about an inaccurate premature signal sent by the USDA employee. The resulting scandal infuriated President Theodore Roosevelt, who asked Congress to criminalize insider disclosure of agricultural statistics reports. Since that time, USDA has quarantined the area where its most important agricultural reports are compiled - and sealed the window blinds - to prevent any leakage of the reports' contents before official publication.

The WASDE report can trace its beginnings to the "Great Grain Robbery" of 1972. In the years following the New Deal, the number of USDA agencies involved in collecting and analyzing agricultural statistics expanded to the point that, by the 1970s, USDA' s economic intelligence system had fragmented. Even though many USDA officials were aware of some of the Soviet Union's grain purchasing activity, without sufficient cross-agency information sharing, the Department as a whole failed to notice that foreign buyers were securing large portions of that year's U. …

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