LATELY, U.S. and global markets have been all a-‘Twitter’ as the worst drought in half a century runs its devastating course.
Grain markets have always been rife with rumours and speculation, but when you add instant and viral forms of communication such as Twitter to a crop disaster, it can take that frenzy to a whole new level.
Take, for example, the recent Pro-Farmer tour through the U.S. corn belt, which continues to be ravaged by drought and blistering heat. This tour, which gives market analysts and other industry participants a first-hand view of crop conditions, happens every year.
Traditionally, reports filtered back to the participants’ offices overnight and became fodder for futures market activity when it opened the following morning.
That was when the trading was all done by guys in funny jackets yelling at each other in trading pits. Futures trade is now mostly on computer screens, and is pretty much 24-7.
So, this year was different.
"When the tweets began flying under the category #pftour12, traders began taking positions in the futures markets at the Chicago Board of Trade in a way not seen before in the 20-year history of the ProFarmer Midwest Crop Tour," Reuters reports. It was largely due to the "seeing is believing" phenomenon. Farmers, extension officials and weather analysts have been telling anyone who’d listen how bad things are out in the boonies. Satellite technology, weather reports and extension reports were all saying the same thing. But there’s something about seeing for themselves those stunted plants and dwarfed, shrunken cobs that brought it all home for the market movers. Even U.S. President Barack Obama went out to have a look.
Production estimates and their influence on the markets can take many forms and date back to the early days of agriculture on the Prairies. Statistics Canada routinely calls approximately 10,000 farmers to get a feel for everything from what they plan to seed to what they think their fields will yield. But the very nature of a survey means it takes place weeks before the estimates can be compiled and released. A lot about the state of a crop can change in a few weeks so that data is always taken with a grain of salt.
Early in the last century, an enterprising reporter for the Winnipeg Free Press built an international reputation as a forecaster of the Canadian crop, the biggest influence on the wheat market at that time.
Cora E. Hind was skeptical of a U.S. crop expert’s assessment of the effects of an outbreak of black rust on Prairie yields. So she travelled across the Prairies to do her own estimate.
Whereas the experts were saying the crop would yield only 35 million bushels, her estimate came in at 50 to 55 million.
She was right. That year’s crop came in at 54 million bushels and her production forecasts after her annual crop tours became a global phenomenon.
According to writer George Siamandas, in 1924 she travelled 10,240 kilometres over 37 days making 30 to 50 stops a day to check crops. She always came back with a prediction that was remarkably accurate.
This was generations before the development of yield monitors and GPS satellite guidance systems used to support today’s yield estimates.
Of course, back in those days, she gathered all her information and then prepared a report that appeared in a newspaper. At best, she would have had access to a telegraph to send information back to her publishers.
Today, someone can look at a field and tweet what they see to the world in seconds. But while tweets such as "a whole lot of ugly" direct from the field’s edge provide some colour, it is hardly the stuff of careful yield estimates derived from visiting multiple sites over a wide area.
And when people read a report by Cora Hind, they knew it was by Cora Hind and could accept or reject what she said accordingly. Tweeters don’t have to reveal their identity, so how does anyone determine the credibility of the source? There’s potential for abuse by anyone trying to influence the market in their direction.
What hasn’t changed over time is markets feed off information from a variety of sources and that information can sometimes have a perverse effect on farm gate prices.
Some farmers have even speculated whether they are doing themselves any favours by responding to those surveys or otherwise helping the traders know how much they’ll have to sell. But whether the news is good or bad, there’s no shortage of people willing to trade on the story.
Laura Rance is editor of the Manitoba Co-operator. She can be reached at 204-792–4382 or by email: email@example.com