Gone missingGone missing
Stocker price risk could grow with the data void created by the government shutdown.
February 1, 2019
“It hasn’t hurt so far, but I think the market is trickling down because of it. Markets always trade lower on uncertainty, never higher,” says Ted Parker of Ted Parker Cattle, LLC, a stocker operation based at Seminary, Miss.
Parker is talking about the impact of missing public cattle and beef market data due to the longest partial government shut down in history.
Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, likens the current situation to driving down a long, winding road where frequent road signs and mile markers become scarcer.
“You keep going, but if there are no more signs, eventually you don’t know where you’re at or how you got there,” Peel says.
Unlike the last government shutdown in 2013, Peel explains price data from the Agricultural Marketing Service (AMS) continues, so there are market checkpoints.
Even without production data from the National Agricultural Statistics Service (NASS), price data offers some notions about quantity, says Glynn Tonsor, agricultural economist at Kansas State University.
So, no one is flying blind, but the longer the shutdown continues and the more key road signs that are unseen, the more that uncertainty increases.
Arguably, that’s also true of those with access to private market analysis.
Private company economists or Extension economists, like those mentioned here, provide USDA data interpretation, and may also utilize non-USDA data, but all use USDA data as a reference point.
“Those USDA reports may not be right, and it may sometimes feel like some are trading on the information before the reports are released, but we’ve got to have them,” Parker says.
Keep in mind, that’s coming from someone who has the natural hedge of buying and selling cattle about every week of the year, besides managing price risk every other way you can imagine.
“I’ll hedge, feed, forward-contract, a little bit of everything,” says Parker, who earned this year’s Beef Stocker Award, which is sponsored by Zoetis and BEEF magazine.
“At the end of the day, everybody measures against USDA. It might not be right, but it’s official,” Peel says.
Missing data so far
Early on, analysts with the Livestock Marketing Information Center (LMIC) explained, actual slaughter data was among the most missed weekly market data; it provides information on weights, production, and the number of head slaughtered.
Through the third full week of January, the monthly World Agricultural Supply and Demand Estimates, Livestock, Dairy and Poultry Outlook, export trade data and Cattle on Feed reports were unavailable. At the time, the Jan. 1 Cattle inventory report was also in question.
“The reports that are going to be sorely missed include the Cattle on Feed reports and the Jan. 1 Cattle inventory report,” says Andrew P. Griffith, agricultural economist at the University of Tennessee. “These reports tell market participants a great deal about total cattle availability and where the animals are in the pipeline.”
This situation is further exacerbated by not having a breakdown on number of head slaughtered by classification (steer, heifer, beef cow, dairy cow) and dressed weights, he says. “The same goes for export quantities. It is difficult to know what prices should be doing downstream in today's market and what to expect in tomorrow's market when export quantities and values are no longer available to market participants.”
Tonsor adds the Cattle inventory also provides region-specific data and insights.
To a point, some of the information is ultimately recoverable via approximation.
For instance, Tonsor says he’d be comfortable backfilling the gaps left by missing a couple of Cattle on Feed reports. Miss enough of them, though, and cattle from the last actual observation are no longer there, meaning that the approximation gets sketchier.
Likewise, if the Cattle inventory report went missing, Tonsor says gaps could be partially filled by the subsequent July 1 estimates, but that would leave six months of wondering.
More downside risk ahead
“For stocker operators, the direct implication is more volatility and markets building in more of a risk premium the longer data is unavailable,” Peel says. “Risk management takes on a bigger role because there is more uncertainty.”
“Without some positive news from a Cattle on Feed report or the Cattle inventory report, the market is probably going to meander lower because people are expecting large numbers for both,” Griffith says. “The stocker producer should give consideration to hedging cattle being bought and sold in a market with limited information from USDA.
“My initial thought is that the market is already pricing in scenarios where prices would move lower, though, which then begs the question of hedging if the market is already pricing in lower values. The answer would be if a person could afford to risk prices moving even lower.”
Increased uncertainty is not due to the missing data alone.
“If I’m a stocker operator, should I be worried about more downside price risk this year than last year?” Tonsor asks. “Yes, but it has nothing to do with the missing data and reports so far. Prices have been higher than many of us anticipated the past couple of years because the U.S. economy has been good and U.S. beef exports have been very good. It’s hard for me to have confidence in both of those being true in 2019.”
Likewise, Peel believes the biggest risks to the overall market currently are the lingering trade issues shaving off domestic and global GDP.
In the meantime, markets assume.
“The markets will continue to make assumptions about the content of these missing reports,” says Brenda Boetel, Extension livestock economist at the University of Wisconsin-River Falls, in the mid-January issue of In the Cattle Markets. “The longer the lack of information prevails, the greater the market correction may be when
the reports resume, especially if the reports say something different than the market assumed.”
For instance, the ongoing sideways price movement overall suggests folks expect Jan. 1 beef cow numbers to be on par with last year, give or take. Suppose when the data is available, there are lots more or lots fewer cows than expected.
“Even without the shutdown, that could still happen and sometimes does happen when reports come out with a surprise that hurts or helps,” Tonsor says. “I don’t have any reason to believe the government shutdown makes that any more or less likely.” At the same time, he recognizes that uncertainty grows over time and missed information.
“I wouldn’t alter my plans currently because of it, but I wouldn’t necessarily invoke a lot of new plans, either,” Peel says. “The risk is that you think you’re going down the right road and then you have to make a big correction. There is the potential for a serious market movement based on expectations.”
Editor's Note: The U.S. government reopened Jan. 25, at least temporarily, with a new deadline of Feb. 15 for Congress to achieve consensus for a budget.
In the meantime, USDA released this schedule for catching up on some of the missed reports.
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