The U.S. Department of Agriculture (USDA) likes to maintain the fiction that its crop size estimates are just a wonderful public service, and do not affect the market.
Nothing could be farther from the truth.
The futures traders at the Chicago Board of Trade and Chicago Mercantile Exchange glom on to each estimate like it was the holy grail, and drive the market up and down like a yo-yo, in order to generate trading commissions. As this blog has stated many times, traders don't care whether the market goes up or down, or what effect it has on the cash price of the actual commodity underlying the futures contracts--they just need to generate commissions.
The more volatile the market, the greater the commissions. And there's little better than a good USDA crop size estimate to create volatility.
The latest example has been USDA's corn crop estimates, which have been revised downward now twice. It's driven CBOT corn futures and CME cattle futures into a tizzy with each recasting. It severely damages the actual farmer or rancher who actually owns real, existing corn or cattle, as opposed to only a futures contract.
But there's never an apology from USDA for their wild guesses, which more often than not are off. Because, of course, they will only admit they are doing a public service by estimating the crop or livestock numbers, never affecting the market.
Right. That white lie and $2 will get you a cup of McDonald's (not Starbuck's) coffee. Oh, and by the way--the coffee crop in Central America looks pretty healthy this year.
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