Three market experts weigh in on how the absence of today’s canceled USDA reports will affect grain prices.
The market was predicting Oct. 11 to be a market-moving day. USDA’s monthly Crop Production and World Agricultural Supply and Demand Estimates reports were scheduled for an 11 a.m. release. But, due to the government shutdown, that won’t happen.
How will this situation affect the grain markets?
"The informational void created by USDA not releasing the October WASDE and Crop Production reports is not inconsequential," says Greg Wagner, president of GWX – Ag Advisors. "However, since USDA saw fit to properly communicate the non-release of the reports in a timely fashion, the trade has been able to mitigate the impact. The trade has been hobbled, but not fully incapacitated, in the absence of the steady stream of market data from the USDA."
Joe Vaclavik, president of Standard Grain, agrees that the grain markets will be affected by this lack of information. "The trade relies on objective data from the USDA," he says. "Everyone involved, whether it be a farmer, trader, merchandizer, cattle feeder, etc., uses this information to make decisions."
Since the government shutdown began, Vaclavik says, the markets have been quiet. "This lack of information and uncertainty is bad for the grain business," he says. "People often criticize the USDA and their information, but we can all agree that their data is the benchmark. An uninformed market is an ineffective market."
Ted Seifried, Zaner Ag Hedge Group vice president, says that missing the October USDA report is a big loss for the grains markets. "This report was to be the first field-based report of the year from USDA, rather than the statistical based reports we have seen so far," he says.
Seifried says the last few months have raised a lot of questions about the quality and yield potential of the corn and soybean crops. "Frankly, it has been a very strange year weather-wise and markets are unsure what the effects of the cold and wet spring, warmer June, near record cool July and hot, dry August had on crops," he says. "This report was supposed to lend some answers, which we will now have to wait for from the USDA."
Filling the Information Void
While USDA is closed, the market has found some other information sources.
Informa Economics released its estimates last week. Seifried says those numbers were closely watched and the market responded slightly bullish. Additionally, other analysts are putting out yield and production estimates.
Other, production clues are also available. "The grain markets have, from a fundamental standpoint, an exceptional stream of information feeding into the price discovery process via yield reports, basis levels, and futures price action," Wagner says. "These all are acceptable vehicles in which to gauge and formulate ongoing re-assessments of supply and demand expectations."
The livestock markets have turned to meat processors for information. "Some major meat processors decision to use private reporting services in lieu of USDA aggregated price data to establish contract prices is an imperfect, but necessary adaptation," Wagner says. "Similarly, the CME Group recently announced contingency to change the settlement process in the soon to expire October Lean Hog Index serves as another example of a necessary, albeit imperfect adaptation, to the price reporting vacuum created by USDA's forced shutdown."
Shut up. All of the USDA buildings in the U.S. have similar signs, alerting visitors the offices are closed for business until Congress restores funding.
How to Market without Reports
Vaclavik says farmers can still make good business decisions, without USDA data. "With or without the USDA, profit margins are the most important piece of information to a farmer," he says. "Whether corn is $3 per bushel or $10 per bushel, the only thing that should really matter to a producer is the profit margin."
Wagner’s advice is to stay tethered to your local basis and keep an eye on spread relationships. "Particularly watch the November 2013 soybeans contract," he says. "The most recent strengthening in the price premium of November 2013 over January 2014, is giving signals it has or is in the process of "topping out." The spread has been telegraphing a need for cash soybeans, but a wide open harvest pace may have just pumped enough beans into the pipeline to meet demand."
For More Information
See current market queotes in AgWeb's Market Center.
Read blogs by the market experts quoted:
The Ted Spread by Ted Seifried
Standary Grain by Joe Vaclavik
Even Keel Ag Perspectives by Greg Wagner