The I in AI is Missing

• The argument could be made that late Thursday and early Friday market activity in the grain and oilseed complex has been heavily influenced by trading algorithms reaction to incorrect weekly export sales data from USDA. 
• While I've long given algorithms credit for evolving beyond the simplistic, and not overly intelligent practice of trading USDA reports, I am being forced to reexamine my position. 
• At the end of the day, though, all that will matter is where markets are at the end of the day, meaning Friday's weekly closes.  

I found Friday morning’s grain and oilseed markets interesting. Disturbing, but interesting nonetheless. Why disturbing? I did an interview with RFD Radio Thursday afternoon and my friend Marlin Bohling quoted me what other analysts were saying about the selloff. The theme of the day was funds hit the grain and oilseed sector hard after USDA finally released its weekly export sales and shipments data for the week ending Thursday, August 18. My reply was this didn’t sound right. Yes, the numbers posted were mostly dismal, but they were one to two weeks old upon release. My thought was, as I discussed in Afternoon Commentary on my website, markets got caught in a vacuum after the strong rally early this week burned up available buy orders. 

However, after I posted my Commentary, USDA sent out a statement saying the Foreign Agricultural Service (FAS) “encountered challenges that affected the physical dissemination of the data as well as data quality. As a result, the agency has taken the system offline and is retracting the weekly export sales information disseminated earlier today.” 

The grain and oilseed sector immediately rallied overnight, though again I wasn’t convinced the rally could hold. December corn (ZCZ22) gained as much as 7.5 cents on trade volume of 19,000 contracts (pre-dawn Friday morning) while November soybeans (ZSX22) rallied as much as 13.0 cents on volume of nearly 16,000 contracts. But again, I still gave both contracts a 50-50 chance of making to the end of the overnight session, let alone Friday’s close still in the green. Once the opening bell rang, though, the sector as a whole took off like a rocket with Dec corn hitting a high of $6.6375 by mid-morning, up 13.75 cents for the day, while Nov soybeans reached a high of $14.62, up 30.75 cents from Thursday’s settlement. Both had not only erased but blown past Thursday’s losses of 7.25 cents and 25.75 cents respectively. 

Was Watson (my name for algorithm trade) really unintelligent enough to trade outdated USDA numbers? A look at the results at Friday midday and the answers seems to be yes, Watson is unintelligent enough to trade USDA reports. This confirms fears from earlier in the week when Watson responded to pictures of ears of corn on social media with a resounding round of buying, setting the stage for what should be an interesting CFTC Commitments of Traders report (legacy, futures only, the only one of the CFTC reports that matters) later Friday afternoon. Keep in mind data for this report was pulled at Tuesday’s close.

Before we can jump to any conclusion, we should wait to see how Friday’s session finishes. For now though, it doesn’t look good for the IQ of AI (artificial intelligence), with the I part of the title glaringly missing. On the other hand, it allows us to again consider a couple key principles I have toward markets in general: 

• The Goldilocks Principle: Daily charts are too hot, monthly charts are too cold, but weekly charts are just right. 
• The Wilhelmi Element (named for my late friend and long-time CBOT floor reporter Gary Wilhelmi): The only price that matters is the close. 
• The combination of these two tells us the price we should pay attention to is the weekly close. 

Lastly, all that has transpired over the last 24 hours is further confirmation of what I’ve long said: USDA reports need to be ended, sooner rather than later. Imagine what the next round of Quarterly Stocks reports, grain in store as of September 1, are going to look like with early corn harvest occurring as producers look to take advantage of incredible August basis markets. But that’s a rant for another day.

• 7 Cent Strength in Corn
• Beans Firmer into the Day Session
• Wheats Up Into the Friday Market
• Corn Market Fades on Thursday