WHAT you don't know can kill you: In the two weeks of federal government shutdown thus far, the grain and livestock markets have certainly felt the reality of that sentiment.
The markets, absent vital U.S. Department of Agriculture data, are flying blind.
"We have no clue what is going on in the market," Kansas wheat farmer Tim Peterson told the Associated Press last week. "It is causing a direct void in information that is immediate."
Grain farmers saw Oct. 11 come and go without the highly anticipated USDA "Crop Production" and "World Agricultural Supply & Demand Estimates" reports, which are viewed as critical to the price discovery system in the U.S. Among the 800,000 furloughed federal workers are key employees at the National Agricultural Statistics Service and World Agricultural Outlook Board who compile and analyze such data.
With no end to the shutdown in sight at press time (although rumors of a possible weekend breakthrough were circulating), there was no indication that the October reports would be available anytime soon. Data collection for the November reports should be underway soon, bringing a second month of reporting into question.
A number of private industry sources and analysts have attempted to fill the void, but no single entity has the resources, history, track record or credibility of the federal government when it comes to keeping tabs on the nation's field crop and livestock production systems.
Kansas State University economist Dan O'Brien pondered what would happen if USDA's vast statistical apparatus were offline for an extended period of time or if its services were greatly reduced at some point in the future.
"First and foremost, grain producers and users would be paying much more attention to basis and cash price trends at various upstream and downstream locations in the U.S. and world grain marketing systems — along with any arbitrage opportunities that may exist from transportation of grain between points," he wrote. "The market would also be more closely attuned to grain futures carrying charges and the general structure of futures prices as signals of whether to hold and store grain or to 'sell now.'"
In the absence of publicly available grain supply and demand information, O'Brien speculated that technical market analyses would likely hold more sway, with market participants "looking wherever they can for guidance" relative to their respective grain marketing information needs.
The role of private analysts and crop reporting services would become much more pronounced, according to O'Brien, who theorized that a host of "cottage industries" might likely spring up in major crop-producing states to generate local and regional crop rating and development information to fill the needs that USDA traditionally provided with its weekly crop progress and condition reports.
While some in the trade might welcome a little less USDA in the markets, this is one area where a government solution might well be preferable to an industry effort.
"All this would be done for a profit motivation, with individuals and firms competing for the title of providing the best info to market decision-makers," O'Brien said. "We would probably see these local 'in the field' crop appraisal efforts supplemented by even more intensive use of private satellite technology to assess domestic and foreign crop development prospects."
In that sense, a sharp reduction in USDA-published market information would be a major loss for the market in general terms. What is now considered a "public good" available to all participants, regardless of their economic means, would instead become a profit-motivated enterprise that not all U.S. producers could afford or would choose to use.
"Also, the long-term historic, high-quality data set that is heavily relied upon by the U.S. and world agricultural sectors for market perspective and analysis of the relative impact of (agricultural) market factors on price prospects would be discontinued or curtailed," O'Brien noted. "In the transition from public to private information, the reliability of market information and, therefore, of market decision-making would suffer — with the possibility of greater grain market price volatility and uncertainty."
One area of uncertainty at the moment is what's happening in South America as planting gets under way there. With no USDA data available, markets are left to trade on private harvest yield estimates and anecdotal planting reports from the field.
According to the U.S. Grains Council (USGC), early corn planting got under way in Argentina in August and will continue through October. Late corn — comprising roughly 30% of the crop — is planted in November through early January.
USGC's consultant in the region reported that some planting delays in early corn seeding will shift acres to the later crop, and conditions have been cool and dry. In some instances, acres may shift from corn to soybeans because of the dry weather.
USDA's September report projected Argentina's corn production at 26 million metric tons (1 billion bu.), roughly steady with last year.
Lower corn prices and a large carryover of corn negatively influenced planting decisions for corn in Brazil, according to USGC, with farmers opting not to plant as much of a summer corn crop. An anticipated record soybean crop also played a role, with the outlook for soybean exports next year keeping farmers optimistic about growing soybeans.
USDA's current estimate is for 72 mmt of corn production from Brazil this year, down from 81 mmt last year. However, that figure may be 2-3 mmt shy of the mark, according to the USGC consultant.
Corn futures set three-year lows in early trade last Friday, ending the week on a sour note due to harvest pressure and troubling demand prospects. Speculation that the Environmental Protection Agency might trim mandated ethanol volumes by 6% in each of the next two years was viewed as summarily bearish.
In August, analyst Dan Basse with AgResource Co. told cattle feeders that the ethanol boom had, at long last, come to an end, and rumors of a smaller renewable fuel standard mandate only fed that growing perception in the marketplace.
While the ethanol industry has frequently been blamed for driving corn prices to unprecedented heights, the market dynamic is changing, according to University of Illinois economist Scott Irwin.
"As long as the E10 (10% ethanol) blend wall is binding, the price of corn drives the price of ethanol. This is a reversal of the relationship between ethanol and corn prices that has been in place for much of the ethanol boom," Irwin wrote last week. "It has the further implication that the pricing of corn at the margin is now primarily determined in the domestic and foreign feed grain markets. In this sense, it is 'back to the future' for the corn market until the E10 blend wall is breached."
That breach doesn't appear to be coming anytime soon.
All things considered, the corn market was actually somewhat cautious last week, which isn't too surprising given the lack of USDA data through the first 11 days of October. Futures prices had softened by only a nickel from the previous Friday to last Thursday's close.
Markets have been very thin, however, with traders reluctant to dive headlong into a pool that has no firmly defined bottom. Volume was a paltry 122,264 contracts in the corn pit Oct. 4 before more than doubling to 256,394 in last Monday's trade. Volume fell each day thereafter, however, with only 160,312 contracts traded last Thursday.
Soybean prices continued to battle toward $13/bu., a key psychological mark as well as the 50-day moving average on the nearby issue.
Farm Futures analyst Paul Burgener said the November contract traded in a narrow range between the 100-day and 50-day averages throughout the week.
"There is incentive to sell beans at harvest from a stronger-than-usual basis and an inversion in the market that shows some fear of a big South American crop on the horizon," he explained. "CONAB, the Brazilian (agricultural) statistics service, has pegged the next crop at more than 3.2 billion bu., up 275 million from last year's record crop. This is still lower than the U.S. projection but confirms another record crop coming to market this year."
Soybean prices through last Thursday's close had fallen no more than a dime compared with the previous week's settlements. Volumes surged throughout the week due to the infamous Goldman Roll, when funds move their positions out of the nearby contract.