For the first time in more than 100 years, reporters were no longer welcome to join the USDA lock-up procedure for market-sensitive reports that occurred on August 10th. The proliferation of high-speed trading in commodity markets was the reason cited, though no evidence was provided confirming a link between the two sets of activities.
At least once a month, dozens of USDA commodity and trade analysts gather together in an obscure, windowless wing of USDA’s South Building to discuss and finalize official USDA estimates that will go into market-sensitive public reports on U.S. and global markets. Because of the vulnerability of those markets to information leaking in advance of those reports’ release, this work goes on behind locked doors, with security guards restricting entry and exit. In fact, once an individual enters the area during the ‘lock-up’ period, they cannot leave until the report goes out, nor can he or she communicate with the outside world in any way.
Between 1986 and 2013, many of these reports were scheduled for release at 8:30 am ET, which meant that personnel involved in the process had to arrive at USDA in the wee hours of the morning to complete their work. Since January 2013, the reports have been released at noon ET.
Sometimes, non-USDA personnel are allowed to enter the lock-up area and observe the process of getting these reports out. I was given that opportunity once during my career on the Senate Agriculture Committee as the person with responsibility for trade issues for the Democratic staff, when USDA was releasing the first estimates of livestock trade impacts from the discovery of the first BSE (mad cow) case in the United States in December 2003. I enjoyed the experience, but was glad that it was not a regular part of my work responsibility.
The tight security at USDA surrounding the preparations of these reports was established in 1905, after it came to light that an unscrupulous USDA employee was signaling the direction of certain cotton estimates to a confederate standing outside the building by raising or lowering window blinds as pre-agreed signals.
Since the beginning, U.S. reporters specializing in agricultural issues have been regulars in the lock-up process, giving them a chance to read the reports and prepare their analyses for publication right after those USDA reports go public.
That all changed last week, as Secretary Perdue announced on July 10 that beginning in August 2018, reporters would no longer be permitted entry into lock-up and would have access to market-sensitive USDA reports only upon their release, the same time as the general public. The August World Agricultural Supply and Demand Estimates (WASDE) report was released on August 10th.
The Secretary justified this decision by pointing to concerns raised by farm and commodity groups about recent proliferation of high-speed trading disrupting the commodity markets within seconds of the release of market-sensitive reports such as the monthly WASDE report and the Prospective Plantings report released at the end of March every year. At the time, USDA provided no empirical evidence that the presence of reporters in the USDA lock-up facility contributed to this problem in a significant way.
Other federal agencies which publish similarly market-sensitive reports, such as the Labor Department’s (DOL) monthly estimates of consumer price changes or the release of the Federal Open Market Committee decisions, have also taken steps to address similar concerns in recent years. Based on recommendations from a 2012 review of computer security by an external firm, DOL decided to expel reporters from a handful of publications closely tied to specialized trading firms, and required media outlets to install new computer equipment for their reporters that would be maintained and inspected by Labor Department technicians. Earlier this year, DOL announced that it would require journalists to renew or request new credentials to participate in their monthly lock-up procedure.
In April 2016, the Inspector General for the Federal Reserve recommended tightening security procedures for reporters entering the pre-release lockup room, such as monitoring for wireless signals in that room and ensuring that reporters complete the required sign-in process before entering.
However, none of these agencies has gone as far as USDA did last month, in reversing decades of tradition in giving reporters an opportunity to get their analyses out to the public at the same time those reports are released.
Although the reason given for the change was that it would help to level the playing field between farmers and high-speed traders vying on U.S. commodity markets, it is not clear that this action will have such an effect. The latter will have resources to provide themselves almost immediate access to the USDA reports after their release and initiate transactions, while many farmers and other occasional market participants will have to wait for the reporters’ analyses to emerge. Even if farmers choose to access a given report themselves on the NASS or OCE websites at the time it is released, only 60 percent of the rural population in the United States had access to high-speed Internet as of January 2018, so many of them are already at a disadvantage once they turn their computer on. USDA should release the empirical evidence or analysis that justifies this decision, if any exists.