Rise of Algos Spurs Call to Give Human Grain Traders a Break

(Bloomberg) -- Spare a thought for grain traders. Not only are they getting whipsawed by news on Chinese trade tariffs, they’re also being elbowed aside as crop reports from the U.S. Department of Agriculture cause big price swings.

Now one academic is calling for the futures market to take a breather when the USDA data is released, in a similar way to how stocks are sometimes halted pending major company news. A brief pause would give everyone a fair chance to see the data and react, Charles Jones, senior vice dean at Columbia University Business School, said Thursday at a conference in Overland Park, Kansas, sponsored by the U.S. Commodity Futures Trading Commission.

The USDA’s World Agricultural Supply and Demand Estimates (WASDE) report arrives one day each month with a thud at noon Washington time (the April report is due next Tuesday). That’s right in the middle of the U.S. trading day. Prices for corn, soybeans and several other farm commodities often move violently on the fresh forecasts for crops and inventories. Last week’s plantings report from the USDA also injected volatility into the grains markets.

Much, if not most, of that price action is being driven by machine-trading. Automatic trading accounted for 49 percent of total volume in the grains markets in 2016, up from 39 percent in 2012, according to CFTC data presented at the conference. For livestock markets, the proportion rose to 46 percent from 32 percent.

To contact the reporters on this story: Simon Casey in New York at scasey4@bloomberg.net, Jeff Wilson in Chicago at jwilson29@bloomberg.net.

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Millie Munshi

©2018 Bloomberg L.P.