Over the last several months, I have heard more doubt about the accuracy of USDA data and the markets than ever in my life. Is it just because prices have fallen sharply and are now below breakeven for some farmers, or that some farmers and advisors have egg on their face and are looking for an out, or is it something else? Estimation of planting intentions, production, use/disappearance, and stocks is extremely difficult, partly because there is no way to execute a complete “count” at any point in the process. Everything has to be based on extrapolations from known sample information to unknown regional and national estimates with statistical margins of error. Estimates of crop conditions are expected to change throughout the growing season as new data is available. So, what is the real source of the increased anger, frustration, and blame gaming?
Today, many folks want to deal in soundbites, which leads to partial information that is only a little better than misinformation – actually, it often is misinformation when taken out of context. One thing I am sure about is that most soundbites are not comprehensive enough to either identify the real problems or options to solve the apparent problems.
If you have ever worked with me, you know my approach is to identify problems that need to be fixed and options that will fix the problem, or ways to live with the problem. I would like to start with “my plan is not working” but that may get too close to home until a lot of frustration is vented about “data sources.”
By “data sources,” I am talking about USDA monthly and quarterly estimate reports, private estimates, fundamental and technical information that flashes across the screen every day, market advisors, and street estimates. USDA estimates – Straight up, I believe the published estimates are produced according to processes developed and reviewed constantly over many years to produce the most accurate estimates available at the time they are scheduled for release. If the process is not working , farmers need to work with their national farm organizations to enlist the strength of many. Individuals venting accomplishes very little. If there is a problem, this is a case of having to live with it until it is fixed so you can focus your energy on where it will have an impact.
Private estimates – Use them instead of USDA numbers if you can get your hands on objective written documentation that verifies that the private source has a consistent performance record of more accurately predicting price and price movement. It doesn’t matter how fancy the “cherry picked” results look if the price prediction accuracy is not going to improve your bottom line.
Fundamentals and technical information – Many pieces are generated every day and they play well as soundbites for media editors without an agricultural background. Markets are based on fundamental and technical information with little or no translation to price expectation or movement, and the media is good at flooding our minds with fluff and distracting us from thinking about what it really means.
Marketing advisors – While I disagree with some advisors because I believe they lack the educational background and experience to recognize why some marketing systems are unlikely to work, there are very few that I believe intentionally deal in deception. If the advice is not working, it is the advisor and not the market. Learn to recognize the difference between excuses and logical explanations. Use advisors who can provide you with written documentation of actual performance to predict prices and price action. Ask your advisor what their core strategies are based on. Ask your advisor if he/she can show you the demand curves they are using to estimate corn, beans, and wheat prices. I will leave it there.
Street estimates – Very few farmers use the same methods to estimate their yields for budgets and the banker that they use to report yields to USDA or the coffee shop. Most farmers can do a pretty accurate job of estimating their yield, but the numbers tend to be weighted one way or the other depending on whether the guy across the table is bragging or crying the blues.
To summarize the data source estimates, of course there will be variation by everyone that touches the fundamental and technical information. Every farmer knows, or should have known, data sources and price risk management challenges existed when they entered farming. Many entered as apprentices and are just now learning that the experts released them without completing the training. The data issues are not going away, so the options are to learn to use the tools that will allow you to live with the data issues or accept reality that your competition is using the tools successfully and have a significant advantage.
Now moving on to the marketing plan. In the intro for the article, I intentionally did not use “marketing plan.” Success of a marketing plan depends heavily on whether the assessment of fundamental and technical information about production and price estimates are accurate. If your price projection system is not working effectively, then you are faced with protecting against price either rising, falling, or doing both over time. The fact that the market is likely to do both is not a data problem as discussed above. It is now time to entertain the possibility and accept responsibility that it is “your marketing” system that is not working. After many years as a formal and/or informal educator, I can tell you that “why isn’t my system working” is normally one of the easiest questions to answer. “A working system requires several parts to all work together, and there are hundreds of ways to get off track with the wrong parts and/or the wrong assembly as you apparently have done.”
Normally I hear a lot of novices saying something like “this worked last year or the year before.” That is great for a soundbite but fails miserably to recognize the “all other things being held constant” assumption. What concerns me the most is that I have heard more reputable analysts use a similar quote the last few months than ever before, and then go on to raise questions about national data sources and conspiracy or conspiracy implications. Obviously, “conspiracy” is playing well in rural communities as an alternative to true confession.
I don’t have a bone to pick with anyone, but it is a sign of professional weakness to start blaming others for missed calls before giving serious attention to the core economic assumptions that have been ignored or violated. The first place to look for errors is whether “all other things equal” has changed. There is a glaring error when analysts project individual lines in the WASDE format and then are surprised that the price does not reconcile with some time-honored shortcuts to price projections. Don’t get me wrong. There is an obvious value starting with last year as a base and projecting from there to shortcut projections for this year. But there are huge potential errors taking shortcuts to complex economic projections. If your marketing plan is not working, there is a high probability that you are overlooking some basic and critical assumptions. Evaluating and revising your marketing plan has far greater potential to increase your net revenue than blaming external sources for intentional data errors. Everything about the future is an estimate, accept it and learn to live with it. Food for thought!
Posted by Keith D. Rogers on 16 August 2023
