Wednesday, August 1, 2018

"Flash Boys on the Farm? Arms Race Gets Unleashed Over Crop Data"

This is a few weeks old but I have a feeling we will be referring back to it.
From Bloomberg, July 11:
It’s the sort of edge any trader would covet -- and one the authorities were actually hoping to prevent.
Yet the U.S. Department of Agriculture may well be clearing the way for some Wall Street speed demons to trade on market-moving data before others. Abandoning decades of precedent, the agency has decided to only post its reports directly on the web, rather than also release them via accredited media. While that may seem like a democratic move, it actually could set the stage for a winner-takes-all arms race to grab the info first.

The development, announced Tuesday, is the latest saga for crop markets that have increasingly seen high-speed algorithms taking over and running circles around slower human counterparts, a theme popularized by Michael Lewis’s "Flash Boys." Fiber-optic cables, short wave radio, microwave towers: all have been employed to trade faster.

“Somebody will figure out the fastest way to get the information and trade on it first,” said Jim Angel, a finance professor at Georgetown University in Washington. “What it does is it changes the arms race in a different direction.”

2-Second Delay
Press organizations use high-speed fiber optic lines to get data to readers out of the so-called lockup, where journalists are given access to the data up to 90 minutes in advance. It takes the department roughly 2 seconds longer to transmit its reports to the public, according to the USDA. The agency cited this gap when announcing its policy change.

“Everyone who has interest in the USDA reports should have the same access as anyone else,” Agriculture Secretary Sonny Perdue said in a statement Tuesday.
The changes come during a volatile period for agricultural trading. Soybean and hog futures have plunged in recent weeks as China imposed new tariffs against U.S. farm products. Grain prices have also slumped amid ample supplies. CME Group Inc. said trading volume across agricultural futures and options set an all-time high of 3.2 million contracts on June 19.

The USDA’s monthly World Agricultural Supply and Demand Estimates report, known as WASDE, is one of the most-followed events in the grain-trading world. The August WASDE will be the first impacted by the policy shift. It’s typically closely watched as it provides the agency’s first survey-based production forecasts for corn and soybeans, the top U.S. crops valued at close to $90 billion....MORE