1. Weekend Reading: Continuing with my research on USDA reports. Up today is my 1994 JEBO article with Phil Garcia, Ray Leuthold, and Li Yang. So many interesting back stories on this article. sciencedirect.com/science/articl… (pretty sure behind Elsevier pay wall)
2. Paper had its beginnings in an early 90s working paper by Phil and Ray. Ray had a former student who worked at Sparks Commodities, which became Informa, which became IHS Markit. This person gave Ray the history of Sparks and Conrad Leslie corn/soy production forecasts.
3. Conrad Leslie was a real pioneer in this regard. Started in the 60s doing a famous "postcard" survey of yield expectations from elevator managers and others (e.g., Darrel Good) before USDA crop reports. I was fortunate enough to talk to him a few times. A real character.
4. We averaged Leslie/Sparks over 1971-1992 to get a measure of pre-report expectations for USDA corn and soybean crop reports. I've kept the series up ever since and used in a number of studies. Applied economists love data!
5. Here is a chart of the complete series I now have of corn "market surprises" for USDA August crop reports from 1965-2020. Not much evidence that market is any better at anticipating USDA crop production forecasts now than 50 years ago. Fascinating.
6. Now back to 1993. I was on sabbatical leave at Illinois for a year and needed a new research project to justify to Ohio State why they were still paying me. Ray and Phil were kinda stalled on their paper and I said lets update it and get a good publication out of it. Bingo
7. Paper was eventually published in 1997 at JEBO, which is not the normal place for this stuff but the editor at the time, Richard Day, was receptive to ag econ work. We looked at value of USDA reports based on three different types of tests found in the literature.
8. I liked the first test best, which looked at forecast accuracy of private firms compared to USDA. We were surprised at how close the two were in terms of accuracy. And privates had been gaining on USDA, especially since the mid 1980s.
9. There was a major debate in the 1990s about the need for USDA crop and livestock reports and whether they were redundant give available private forecasts. Our research showed that even small USDA accuracy advantages led to large price impacts. Win for the USDA.
10. Final point. 97 JEBO paper was important personally for two reasons. First, foundation for lots of work that came later. Second, the experience of working with Phil, Ray, and Li was a key factor in my interest in returning to Illinois permanently. The rest is history.
11. Typo in first tweet in thread. JEBO paper published in 1997 if anyone was confused.
1. First domino to fall on the 2020 and 2021 RFS RVOs. Yesterday, EPA proposed extending deadlines for 2019 SR compliance and 2020 & 2021 compliance for all obligated parties based on publication of 2020 & 2021 RVOs in Federal Register. Got that? See text below for details.
2. First off, I have no idea if this "sliding" approach to RFS compliance is legal or not. If nothing else, a long, long way from the original policy of compliance occurring shortly after the calendar year ends.
3. In addition, I don't know what this implies for the really important outstanding questions about RFS compliance and RVOs that are forthcoming someday from the Biden EPA.
1. Weekend Reading: In my last weekend thread I highlighted a 1990 AJAE article on the reaction of the live hog futures market to the release of quarterly Hogs and Pigs Reports. An oldie but goodie. Going to roll the clock forward almost 30 years to an update of that work.
2. Two points before getting to the new paper. First, I actually kept up the series on pre-release trade guestimates for HPRs for the last 30 years. Second, incredibly fortunate to team up with Berna Karali at Georgia and Olga Isengildina-Massa at VPI for the new work.
3. Now a methodological point. My 1990 AJAE article looked at "market surprises" as a measure of informational impact of HPR. Difference between pre-release guestimates and USDA #. Since that time, much of the literature has adopted a simpler approach.
1. Recommended Reading for the Day: "What is the Tradeoff between COVID-19 and Economic Recovery?" by Peter Orazem of Iowa State. Very interesting reading card.iastate.edu/ag_policy_revi…
2. Begin with why I think this is such an interesting analysis. The reason is that Peter focuses on tradeoffs. Stock in trade of economists. Seems to me that this has been missing from much of the public debate about the societal response to the COVID pandemic.
3. We are used to dealing with cost benefit tradeoffs in virtually all of our existence. For example, we know that lowering the speed limit nationally to 25mph would save tens of thousands of lives every year. Yet we don't do this. Why? We don't think costs worth the benefits
1. Gary Schnitkey and team back this week with more on nitrogen fertilizer prices and corn production economics for 2022. Nitrogen prices have exploded in recent weeks. Up $278/ton in last two weeks alone!
2. The +$278/ton price increase for nitrogen (anhydrous ammonia) sounds very scary. However, we need to keep in mind several things. First, that translates into a $25/acre increase in fertilizer costs. Not chicken feed but also not huge compared to overall production expenses.
3. Second, I am firmly in the camp that farmers here in the heart of the Corn Belt over apply nitrogen by a bit. Research indicates nitrogen rates can be pulled back slightly without hurting corn yields. Do this and the $25/acre largely disappears.
1. Weekend Reading: Decided to do a series that features my work over the years on USDA crop and livestock reports. If you look at my CV you might be shocked how many papers I have written on this topic. Why? The answer is in my new book, which is almost finished.
2. Taking a trip back in time this week to a 1990 AJAE article I wrote with my very first PhD student, Phil Colling, from my long ago days as a Buckeye. Phil just retired from the CFTC, so you know the paper was published awhile ago!
3. This was my very first paper on USDA reports, and it was a big hit for me early in my career. I was still an assistant professor when it was accepted. I think this is a free link to the pdf onlinelibrary.wiley.com/doi/pdf/10.230…
1. I know I repeat myself, but I still think that an @RinnyTheGopher quote is perfect for the RIN market: It is the only market in history where the fundamental is political intrigue. No better proof than what is being reported today.
@RinnyTheGopher 2. @OPISBiofuels reporting this morning ***Ethanol RINs Down 10cts in Morning Volatility; Markets Stable at Midday.
@RinnyTheGopher@OPISBiofuels 3. "Sources attributed the morning instability on the ongoing speculation around when EPA will release its long-delayed proposals for Renewable Volume Obligation (RVO) blending targets."