US government shutdown – What impact on commodities?

Agricultural , Commodities , Corn , Cotton , Food , Soybaens , USA Oct 08, 2013 No Comments

US government shutdownThe US government shutdown is starting to disrupt commodity markets. Beyond its budget gridlock, the United States could default on its debt if no agreement is reached in Congress by Thursday of next week. This threat to the world’s largest economy has slightly brought down the oil market last week, but is not taken seriously by the commodity markets.

However, the paralysis of a large part of the US administration is already disrupting markets. Since last Tuesday, for example, the US Department of Agriculture has not published any report: no information on U.S. exports last Thursday, no statistics on U.S. agriculture production. It is also unlikely that next Friday, the monthly key report on global supply and demand for agriculture products will be available. But, this USDA report is the reference for the global markets and it can greatly influence global grain prices up or down at a key period, the harvest of corn and soybeans.

Also, the US government does no longer collect sales prices of either american cattle or cotton (it also does not the quality of American cotton, which will lead to delay at the ports). For its part, the U.S. Commodity Futures Trading Commission (CFTC) does not provide information or regulates anymore futures and option markets such as in New York and Chicago. As indicated on their website, “The U.S. Commodity Futures Trading Commission will not produce public reports such as the cotton on call, Commitment of Traders and the Bank Participation Report during a government shutdown.“.

As a result, traders but also farmers and food manufacturers, who need this information, are making hedging choices basically blind. So, as a precaution, operators refrain from participating until things return to normal: the volume of transactions on the meat market in Chicago has dropped by half last week for example.

USDA shutdown

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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