I can remember the two times that I have been right since I got married, the date of our anniversary and my son’s birthdate. Recognizing who is right (my wife) and who is wrong (me) has made life much easier. As it turns out, being able to admit when you are wrong is also the most important trait of a successful trader. Within the context of grain futures — it is important to understand that the U.S. Department of Agriculture (USDA) is always right.
Market analysis is an industry within an industry. Grain companies, brokers, trade organizations and individuals spend an enormous amount of resources to calculate the fundamentals of any given grain or oilseed. Social media has provided a platform for the dissemination of that analysis. However, at the end of the day, it is the USDA that is “right”. The USDA report released on January 10t and the subsequent reaction by the market reminds us of this powerful influence — of who is right and who is wrong.
In its report on January 10, the USDA reduced the U.S. corn carryout to 1,691 billion bushels. This figure surprised the industry as most private estimates predicted a burdensome carryout of 2 billion bushels. A breakdown of usage revealed an increase in the feed/residual category to 2,426 million bushels, an increase of 16% over the same period last year. The increased feed usage is difficult to explain given the 1% decrease in livestock numbers projected by the USDA.
At the end of the day it is difficult to justify a marked increase in feeding given the contraction in the livestock sector. However, what is important is that the market responded positively by prices moving almost 10% higher over the next month. In the interim, the market continues to defer to the USDA figures as its reference point and the private estimates have largely been forgotten.
The lesson to be learned from the USDA January 10 report is that it continues to have the single largest impact of all market analyses — but not necessarily the most accurate. Successful traders set their prejudices and egos aside (losses will do that to a trader) admit when they are wrong and change their strategy accordingly. It may be the single most important attribute to being a successful trader — or for that matter, husband.
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