Each month, the USDA releases its Crop Production Report. It’s a compilation of forecasts and data put together by interviewing more than 21,000 producers across the country.
And it’s the single most important data set in agriculture.
Not surprising, given the USDA is one of the key governmental organizations to the agricultural (ag) industry, as it is responsible for not only executing federal laws relating to farming and ag, but also to promote agricultural trade and production. However, what might surprise you is all the work, process and rigor that goes into the report each month.
One thousand National Ag Statistics Service (federal) employees are dedicated to deliver their mission of “providing timely, accurate, useful statistics in service to U.S. Agriculture.” They do this each month by reporting statistics—and they are 100 percent committed to getting those numbers absolutely right. Their information comes from three thousand ”numerators”—that conduct farm surveys and phone calls from across the U.S, collecting the data that go into these reports. The farm level data these numerators are collecting is compiled to create district and state level estimates. This creates a level of rigor in these reports found in few others. Once this data is collected, it is encrypted and not aggregated until the “Lock Up” that starts in the early morning hours on report day.
Bottom line: Most people just don’t realize how much manpower and how many resources go into creating and delivering this report. It’s really quite amazing. And, no other organization in the world has the ability to do this kind of thing—the USDA is uniquely equipped to produce it.
Many people also may not realize that the first Crop Production Report—or some version of it — was created in 1863 and has been created and shared every month since 1866. And in all those years, the USDA has only missed ONE report (and that due to the government shut-down in 2013). So, there’s a rich and storied history behind the report and the people who help make it happen each month.
Of course, the USDA will create 446 statistical reports in 2017, but, in the ag business, we’re focused on about 26 or so “signature” reports, like the Crop Production Report.
So, why is the Crop Production Report so important? Primarily, because it directly influences commodity prices—from the moment the information is released (Market News, Associated Press, Reuters, Bloomberg and DTN have exclusive access “Pre Report” so they can release accurate data the minute the report is released from the USDA). The Crop Production Report is the de facto industry benchmark when it comes to crop estimates.
Once the report is released (most recently, on Aug. 10), the market reacts. Expectations change. And everyone—industry-wide—starts using the numbers in this report to trade corn, wheat, soybeans and other commodity products.
So, it can be a nerve-wracking time for risk managers just before the release, since we all really have no idea what the report is going to say.
How can you protect yourself against that kind of uncertainty?
First, take a long, hard look at your risk and understand your exposure to the market. Then, run through multiple “what-if” scenarios. For example, let’s say you’re a corn producer and you haven’t sold any corn to date, but you’re expecting a bullish report. What happens if the Crop Production Report shows no change in the yield from the previous month? Do you have a plan for what to do next?
A friend had a saying that’s stuck with me all these years: “Risk management isn’t about being right (about the market), it’s about managing the exposure of your business in the market.” That’s a good mantra to keep in mind as you’re managing your price risk in the ag business —especially as the USDA’s Crop Production Report comes out each month.