He says currently the USDA “crowds out” other data collection firms, which would spring up and fill the void if the USDA was not there. But there would be a host of different companies providing different services, in different areas, and their collective data could not be reconciled or merged to provide a single database that would be available for historical comparison.
O’Brien adds, “To the degree that grain markets would be more vulnerable to the withholding of cash price or local production information by major local/regional market participants – then market performance and efficiency could suffer.” And he questions that while the void would be filled by small private firms, would the “public good” that USDA serves ever be filled for the benefit of small to medium-sized farmers.
Agreeing with O’Brien is Farm Progress economist John Otte who says, “An extended government shutdown will introduce inefficiencies in the agricultural commodity price discovery mechanism. Sketchy data on cash market prices will diminish market transparency. Futures traders will have more difficulty getting reality checks from cash market transactions.” He says farmers will be able to use futures and options, but without the timely data from USDA, when would you really know to do that?
Otte believes that without the USDA’s regular data collection, basis relationships will deteriorate and uncertainty would drive cash prices lower, causing producers to re-evaluate their risk management strategies. He says the threat of delivery with a futures contract would always cause futures and cash to converge, regardless whether one was too low or to high.
But Otte says lean hog futures and feeder cattle futures would be in trouble. The lean hog futures settle against a two-day moving average which is calculated from data collected by USDA. The feeder cattle index is based on a seven-day moving average also collected by the USDA. With the shutdown of the Market News Service, those indexes cannot be calculated and the futures contract does not have a basis for value.
Otte quoted agricultural marketing consultant Michael Cordonnier who said if you do not know the data, you sit on the sidelines. Farmers who need to market a crop to make a cash rent payment by the end of the year can hardly afford to sit on the sidelines.
With the halting of government operations, the USDA data collection process is also halted and that will prevent dissemination of that data as well. The lack of certain information can be disruptive to the markets, creating problems for those who buy and sell with futures market trades. Farmers may also have problems determining the timing of their marketing decisions without good knowledge of the supply and demand for commodities. While the USDA shutdown will hopefully not be long, the data collection and dissemination hiatus is a good indication of what would happen should the service not be available as opponents have suggested.