Analysis - U.S. budget turns red, ag market info fades to black
WASHINGTON (Reuters) - If facts feed the commodities market, a data cutback could leave a bitter taste for traders and analysts who digest government statistics.
The federal agencies that gather data and issue reports on agriculture -- from almonds to ethanol -- face sizable cuts in funding as part of federal belt-tightening.
Cutbacks are coming as grain prices are near historical highs and supplies are tight. They also come at a time when some in the market question the veracity of government data.
Ironically, the U.S. is backtracking on data just as France, as head of the G20, is pushing for an improved data window on commodity markets as one way to temper the sector's roller-coaster prices.
"The need for data ... probably is as high as it ever has been," said agricultural economist Scott Irwin of the University of Illinois, during a recent panel discussion.
While the Agriculture Department has eliminated a handful of minor reports, the Census Bureau ended an entire group of reports in July to save $4 million. The now-defunct Current Industrial Reports included monthly data on soybean crushing, a key gauge of U.S. demand for vegetable oils.
If the government provides fewer of the basic facts for one of the most widely grown crops in the country, it will become harder to set a fair price for it, said Rich Feltes, vice president of commodity research for RJ O'Brien in Chicago.
"Information is the lubricant of price discovery," said Feltes. Without it, he said, prices can become more volatile because of uncertainty of supply. With more volatility, the cash reserve required on contracts becomes larger.
The Agriculture Department is holding its annual data-users meeting on Monday in Chicago, in the heart of the U.S. commodity trading community, and sparks could fly over any data cutback plans.
Last year, the government came under withering criticism for two corn inventory reports that whipsawed the market for their apparent contradictions.
CRUSHING DATA WOES
Half of the U.S. soybean crop is crushed, so the Census report provided valuable information about usage. Processors crush soybeans to make soy oil, used in thousands of grocery store products, and high-protein soymeal for livestock feed.
Also cut by Census were a monthly report on cotton milling and quarterly reports on flour, textile and fertilizer output. An amalgam of farm and processor groups appealed to Congress last week to transfer the work to the USDA.
"Loss of the reports leaves a significant void in the balance sheet for major U.S. agricultural commodities," said the trade groups, who pointed to additional "uncertainty and volatility."
USDA chief economist Joe Glauber said the Census reports helped paint half of the picture for U.S. agriculture -- where crops go after harvest. Without them, there are fewer details. Each month, USDA estimates crop output, use and reserves for major U.S. and world crops in balance-sheet format.
"My greater concern, however, is that it will mean less data are publicly available. Not only will there be less accuracy in the estimates, fewer people will have access to the actual data," said Glauber. "That's a loss of a public good."
The North American Millers Association, representing U.S. and Canadian wheat, corn, oat and rye millers, will decide soon whether to launch its own version of the quarterly milling report, which included U.S. flour production, stocks and mill capacity.
The National Oilseed Processors Association, or NOPA, publishes a monthly report of soybean crushing by its members; but not all crushers are members.
NOPA and the millers were among a dozen trade groups who want the Agriculture Department to take over the Census reports. For years, the millers association paid part of the cost for Census to produce the flour report, which dates from the 1920s.
FEDS AND PARTNERS
Analysts say federal reports offer the advantages of thoroughly surveying an industry nationwide, employing consistent methods and being free of bias. All the same, there are occasional questions about accuracy.
The Census Bureau faces potentially large cuts in the year ahead, but Congress has not finalized the federal budget. The House Appropriations Committee recommended a 25 percent cut.
USDA's National Agricultural Statistics Service could see cuts as large at 5 percent, following cuts in fiscal 2011. An official with the service was reviewing its offerings and the resources needed to produce them.
Key indicators for NASS, besides the twice-a-decade Census of Agriculture, include the monthly Crop Production, Cattle on Feed and Agricultural Prices reports, the quarterly Grain Stocks and Hogs and Pigs reports, and annual reports on
Prospective Plantings, issued in March, and Acreage, issued in June. NASS produces more than 500 reports in a year.
Feltes, the commodity analyst, said it was ironic that agricultural data collection could be cut at the same time U.S. financial regulators try to bring transparency to derivatives markets.
Besides elimination of reports, say analysts, the government could issue some of them less often, survey fewer people, combine overlapping reports or find ways to automate data collection and analysis.
Tom Wegner of Land O Lakes, who spoke on the same panel as Irwin, of the University of Illinois, said USDA might partner with universities or state agriculture departments on topics of joint interest. Banks, cooperatives and forecasting firms, even social media, are possible sources of information, he said.
(Editing by Russ Blinch and Andrea Evans)
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