Shutdown may threaten transparency in livestock market

Farm Forum

The first U.S. government shutdown in 17 years is curbing the collection of cash-livestock prices and threatening to reduce transparency in the futures market used for price discovery by farmers and meat processors.

CME Group Inc., the world’s biggest futures-exchange operator, said Wednesday it’s suspending publishing measurements of cash prices for hogs and feeder cattle. The indexes, used to settle some futures contracts, depend on data distributed by the U.S. Department of Agriculture. Parts of the agency have been shuttered.

“The USDA data is very important for the market to function and prevents one segment of the industry gaining an advantage,” David Anderson, an economist at Texas A&M University in College Station, Texas, said in a telephone interview. “The longer this shutdown lasts, the less transparency there will be for pricing cash livestock or futures. Hedgers and non-hedgers are going to lose confidence and begin to worry about holding their futures positions.”

Global stock markets fell and gold rallied as the U.S. government shutdown entered a second day because of a budget impasse. Grain and livestock traders monitor market information usually distributed by the USDA, including cash prices, slaughter rates, crop conditions and global supply and demand data. The National Agricultural Statistics Service won’t issue reports while employees are furloughed from government duty.

“We are going to get increasingly blind as we move forward as we don’t see the cash prices,” Lawrence Kane, a market adviser for Stewart-Peterson Group in Yates City, Illinois, said in a telephone interview.

Feeder-cattle futures on the CME, which rose to an all-time high Wednesday, settle at expiration based on the value of the most recent prices of the feeder-cattle index, a one-week composite of sales information collected and reported by the USDA’s Agricultural Marketing Service. Lean-hog futures are settled against a two-day index of cash prices reported by the agency.

Live-cattle and carcass grading data from the USDA will be available for settlement against October live-cattle futures, which enter a delivery period next week, the CME said in a release today. Figures used for cash settlements for milk and dairy-product futures will also be available, according to the exchange operator. Meat-inspection funding will continue with user fees to protect food safety, the USDA has said.