How a U.S. government shutdown might impact grain markets
Chicago grain futures have recently mellowed out compared with wild price swings earlier this year, and a U.S. government shutdown could extend the calm streak if history is any indication.
Funding for most U.S. agencies will expire at midnight on Thursday ahead of the new fiscal year on Friday unless a new funding bill is passed. However, a vote could take place later on Wednesday or on Thursday to avert a shutdown and provide funds through early December.
If that bid is unsuccessful, agriculture would be impacted in a few ways, predominantly in the information available from the U.S. Department of Agriculture. But during other recent shutdowns, CBOT corn and soybean futures traded in narrow ranges despite reasons to move to the downside.
The shutdown of 2013 lasted 16 days and canceled USDA’s October world supply and demand report. Offices reopened on Thursday, Oct. 17, 2013. More recently, a record-long 35-day shutdown from Dec. 22, 2018, to Jan. 25, 2019, delayed government data far more severely.
However, the futures market seemed unsure how to react. CBOT corn and soybean futures traded in a very narrow range in January 2019, and they remained relatively elevated despite the overwhelming U.S. supply situation, especially for soybeans.
U.S. farmers were at the height of their corn harvest when the government shut down in October 2013, and corn futures in prior months had been working off the all-time highs set a year earlier. Futures were comparatively stagnant during those 16 days.
The 2019 price action was more interesting, though, as the U.S.-China trade war was ongoing. The two sides had forged a partial agreement in early December 2018 and China had just begun to buy some U.S. soybeans before the data blackout.
This allowed for endless speculation on whether China was still buying because USDA was not publishing weekly or daily export sales. Soybean futures actually rallied throughout January 2019 despite an absolutely disastrous U.S. export season with China on the sidelines.
USDA data eventually showed that Dec. 1, 2018, soybean stocks had easily cruised to record levels, though traders should have seen this coming, especially because the agency was still reporting weekly export inspection data throughout the shutdown since it was deemed critical for operations.
Commitments of Traders data from the U.S. Commodity Futures Trading Commission was unavailable during the shutdown and the numbers did not catch up to speed until March 8, 2019. When the data finally started coming out at the end of January, the corn market was shocked at the results.
Most-active corn futures from late December 2018 to the end of January 2019 had dropped only 2%, but money managers sold their entire net-long position in CBOT corn futures and options during that period, and the market had no idea as estimates had pegged them to have remained decently bullish.
Money managers were net long 128,177 corn contracts on Dec. 18, 2018, though that was basically gone by the end of January, leading the drive toward the record bearishness observed in April 2019. Commodity funds have held on to strongly optimistic corn views for a year now, though lack of confirmation should the government shut down could be an issue.
Hopes for a healthy U.S. corn and soybean export season in 2021-22 have recently supported futures, and that information would be elusive in the event of a shutdown. However, this may or may not be problematic depending on one’s view, since pure speculation over sales was enough to support prices in 2019.
Data delays were frustrating in 2019. Although the shutdown ended on Jan. 25, the market did not see export sales data for the period of Jan. 4 through Feb. 14 until Feb. 22, 2019, when USDA dumped six weeks’ worth of data.
The industry is also expecting USDA’s supply and demand report on Oct. 12 along with an update to U.S. corn and soybean production, though a shutdown would cancel those reports, similar to 2013.
In 2019, USDA’s impactful January reports were missed, including the Crop Production Annual Summary, quarterly grain stocks, U.S. winter wheat seedings and monthly supply and demand. Those numbers were published in February, though Reuters still collected and published analyst estimates in early January as if the reports were going to happen.
Source: Reuters (Reporting by Karen Braun; Editing by Matthew Lewis