Pros consider corn data unsurprising

The U.S. Department of Agriculture (USDA) sets itself up as the arbiter of farm commodity prices, whether intentionally or not.

It's wild guesstimates of the size of a corn crop or the cattle on feed regularly drive futures prices on the Chicago Board of Trade and the Chicago Mercantile Exchange up and down like a yo-yo. Traders, who only make money by generating commissions on the buying and selling of futures contracts, attach themselves to the USDA data like it was the holy grail and milk it for all the volatility it can. Commissions don't come on a calm, stable, steady market--it takes volatility, whether genuine or not, to earn futures traders a living.

Today USDA released the first crop size estimates of this season that featured actual in-the-field counts of crops and their condition. Prior estimates were strictly done statiscally, from computers in headquarters in Washington D.C. It makes sense that actualac count-based data, as opposed to computer simulations, would come closer to the truth.

This latest report shows that spring flooding in the corn belt has not appreciably affected the corn crop, and that quantities likely to be harvested will be sufficient to meet both livestock feed, and ethanol, needs. Corn futures have recently dropped like a rock, as this reality sunk in, before rallying modestly today when the actual data came out.

The rapid inflation in food prices has been fed largely by fears of a high-priced, stunted corn crop, as corn sweeteners and thickeners are in most packaged foods and soft drinks. Corn is still higher than any year in recent memory, but has backed off from the $7 a bushel level, at least.

High corn prices have made it tough for livestock and poultry producers to make a living feeding it to their animals, and send feeders scrambling for alternate rations. Things aren't so rosy for ethanol producers, either, as high corn prices have made the profitability of ethanol questionable too--even with over 50 cents a gallon in federal subsidies.

Once again, we're seeing the results of government interference in free market economics with the flawed data it generates and subsidies favoring one commodity over another. That's why ag markets are screwed up.