THE BIG READ: Why we are all at fault for fake commodity news

Volatility in the wheat markets on Thursday was at least the fourth time in as many months agricultural markets have spiked on misleading statements by officials, fake news or uncontextualized headlines – it’s a symptom of nervy markets and demand from traders that they receive market moving news first.

There may have been a time when traders wouldn’t have taken big positions in agricultural futures on the basis of the content of a Facebook page, a deliberately ambiguous remark by government officials, fake CNN headlines circulating on Twitter or an erroneous tweet on a non-existent wheat tender from a Swiss-based trader.

But all of those have taken place in the past four months with the latest on Thursday as wheat markets soared and then collapsed on reports of a wheat ban that were sourced to comments published on a Ukrainian govenment official's Facebook page.

And just this week soybean prices surged on reports that two government officials in China and the US had had a conversation about potentially overcoming a trade war.

Chinese and US trade officials talking privately in a bid to find a way to restart trade talks - isn’t that what everyone was expecting was happening?

Paradox

In a paradoxical world where the principles of free trade are under threat from a US President yet espoused by a Chinese Premier, markets have become febrile with traders fearing any government intervention - even in the most unlikely places and in unlikely ways - will catch them out.

That has created an even bigger thirst for market moving information than normal.

Because if one thing can move commodity markets more than anything else, it's political interference.

And when traders lose money by trading on uncontextualized or even fake news, or indeed when brokers lose credibility by circulating it, tempers rise.

“Today was an abomination,” “a hipster riding his unicycle is more reliable” and “the news source was a Facebook post” were just a handful of Twitter posts blaming either newswires or social media for Thursday's volatility.

“Who wants to trade tweets?” one source asked recently.

Plenty of people, actually.

Buying the rumour and selling the fact has been around since we put down our sticks and stumbled upon the concept of division of labour.

But it’s the speed and democratisation of information that has exacerbated the problem.

Huge sums

And it’s not the news agencies’ fault or social media’s fault in its entirety.

It’s easy to accuse reporters of not checking the facts before publishing, but in many cases the facts are incomplete or the reporter is deliberately being misled.

Social media and reporters are simply providing what the market wants – news first.

And financial markets are willing to pay huge sums for that.

Global spending on financial market data analysis and news exceeded $28 billion in 2017, according to consultants Burton Taylor International – up 3.6% on the previous year and the highest growth rate since after the financial crisis.

The big two providers that control 56% of the market – Bloomberg and Reuters – have spent vast sums of money on improving latency by milliseconds – hoping that it gives their clients an edge in trading.

That’s certainly the view of the USDA, who next week will remove the preferential treatment it gives big news providers in providing market sensitive news by giving equal access to the public and reporters to its global supply and demand estimates.

The USDA chose to do so because it saw evidence that clients of news agencies had an edge over all other providers due to faster data transmission that those companies have.

And when the stakes are that high, the pressure to write fast and be first with any potentially market moving news trickles down news organisations to the reporter.

Measured by seconds

In the bowels of the biggest information providers, getting beat by just seconds is enough to taint a reporter’s reputation.

Newswire Reuters used to pay (they may still do) PriceWaterhouseCoopers – one of the world’s biggest accountancy firms – to provide it with data on how quickly it published stories versus its competitors.

It was measured in seconds.

Reporters were lauded by beating the competition even by the smallest margin.

But if the market moved and the reporter did not have the story, he or she would hear about it from the editor immediately, and within a day from clients who would, either directly or indirectly, threaten to take business elsewhere.

That puts pressure to print stories and market moving headlines, leaving reporters with little time to corroborate, double-check or even question the most ambiguous statements made by ministers and even world leaders.

This last point is evidenced by EU Commission President Jean Claude Juncker’s statement that the EU would buy more soybeans – spiking soybean markets and giving political credibility to Trump among salient Midwest farmers.

Juncker and the EU then refused to be specific about the statement before admitting what everyone already knew – the announcement made no difference to supply and demand balances as it was based on what had already happened and not a statement of new policy.

Futures retreated.

OJ

But being under pressure in reporting on commodity trading is not new, even if the news comes from the most unlikely places.

In 1995 energy news provider Platts, a division of S&P Global and owner of some of the biggest energy benchmarks in the world, chanced its arm at writing general news for energy traders and chose to report on the notorious trial of OJ Simpson – a famous American football player and actor accused of double murder.

The jury was out and poised for the verdict, the editor at the time had two headlines ready to go – a guilty one and a not guilty one.

As the story goes, the editor incorrectly triggered the guilty one seconds after a verdict was reached before being forced to issue a correction.

He knew what clients wanted - speed.

Just sometimes it comes at the expense of clarity or fact.