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Government Shutdown: Scant Market Data Creates More Uncertainty

government shutdown
Among other things, the federal government shutdown has silenced virtually all of the Agricultural Marketing Service reports the beef and cattle industries rely on to conduct business. As an example, by Wednesday, CME Group was forced to suspend its Feeder Cattle and Lean Hog Indices.

All sectors of the livestock and crop marketing complex started finding out last week how much information is unavailable or harder to come by with government operations shuttered.

Government services deemed as essential, such at meat inspection through the Food Safety Inspection Service, continues. But as of Oct. 1, the spigot closed on services deemed non-essential, including the ubiquitous market reports from the Agricultural Marketing Service (AMS). That means there is no public, third-party-reported cash market data for auction sales, fed cattle traded, boxed beef sales and the like.

By Wednesday, due to the unavailability of necessary AMS data, the CME Group suspended its Feeder Cattle and Lean Hog Indices. According to a letter from the CME folks, “...We will continue to monitor the situation as it relates to any potential changes to the settlement procedures for the October 2013 Livestock futures and options contracts and provide updates accordingly.”

“Livestock producers, packers and end users are trying to adjust now that all of the USDA market reporting they had come to depend upon has stopped,” Steve Meyer and Len Steiner say in their Daily Livestock Report last week. “As noted in our previous reports, packers have been working closely with producers and customers to establish the parameters of pricing product that in the past was done on a formula basis. For the most part, those formulas were benchmarked off USDA reports and now alternatives are being sought. Price discovery has always been challenging. In recent years, however, thanks to congressional mandates and the expansion of USDA’s ability to collect market information, price discovery for many participants became almost costless, sometimes an afterthought…

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“…USDA data show  that 10 years ago almost 70% of all beef traded in a given day was done on a negotiated basis. This year, the percentage of beef traded on a negotiated basis has dropped under 40%...”

There are reliable private data sources, such as CattleFax. There are ways to come up with some information, such as auction data self-reported by auction markets. But, the absence of USDA data means price discovery becomes slower and less robust while transaction cost increases. The result is more caution and uncertainty.

The ultimate impact of not having AMS reports will depend, in part, on how long the government shutdown continues. Even when work resumes, it will take some time to get the wheels spinning at full speed again. As an example, already in question is publication of the closely watched monthly World Agriculture Supply and Demand Estimates due next Friday.




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