US shutdown prompts investors 'to cut ag exposure'

The US government shutdown, and the resulting dearth of official statistics, are prompting investors to quit agricultural commodities over concerns about diminished market transparency, and of a "data dump" when Washington reopens.

Agricultural investors and businesses are still attempting to assess the knock-on effects of the closure since Tuesday of Washington functions, thanks to an impasse between lawmakers over setting the US budget.

The US Grains Council, whose funding beyond 2013 is threatened by the crisis, became one of the latest to caution over the severity of the shutdown, terming it a "matter of great urgency" which, if not resolved "in a timely manner" will cause "significant damage" to crop export programmes.

"This is no time to be in lockdown mode. Delay costs sales," the council, which promotes US grain exports, said.

"We have a good crop coming on that needs to be marketed."

'Moving to the sidelines'

However, there is increasing talk that the shutdown, in halting the flow of US Department of Agriculture data, is prompting investors to shun the market, over fears about the vacuum of official information.

One of the purposes of the USDA's normally extensive dataflow is to promote transparency, with the daily export sales alerts system, for instance, introduced after the so-called Great Grain Robbery in 1972 when Russia, below the market radar, undertook huge purchases of US grain.

The void in "fundamental data has many traders moving to the sidelines," Kim Rugel at Benson Quinn Commodities.

"If not necessarily leaving the market, the speculator is not adding to new positions with Thursday's volume down from Wednesday."

'Massive data dump'

Particular concern has focused on the potential for the shelving of the USDA's Wasde crop report, a much-watched monthly crop briefing, which was due on October 11, but is looking increasingly unlikely to be released given the lack of adequate time for preparation.

"Concern that the USDA's October report could be delayed may lead to some additional short-covering as speculative shorts look to take risk off the table," another trader said.

However, a surfeit of information may also be a concern once the USDA does resume operations, with the potential for a "torrent" of backlogged data, Richard Feltes, at RJ O'Brien, cautioned.

"A massive data dump could trigger sizeable market moves, similar to the volatile market reaction to recent quarterly corn stocks updates," Mr Feltes said.

"The potential for elevated price volatility later this month is increased, a reality that may push selected players to the sidelines."

'Removes a constructive factor'

In fact, the shutdown has produced one positive factor for agricultural commodities in depressing the dollar, a factor which "always prompts some buying", Darrell Holaday, Country Futures said, with a cheaper greenback making US exports that much more competitive.

However, Jefferies analyst Anne Frick flagged some negative pressures stemming from the dearth of USDA data which, in meaning no daily export sales announcements, "removes a constructive factor from the market.

"The seasonal pick-up in soybean export inspections would likely go unnoticed," Ms Frick said, also noting a potential setback should the Wasde be released late.

A delayed report "may allow enumerators to pick up some yield improvement in late-maturing soybeans from the late season rains", and confirm rumours of harvest results proving better than had been feared.

'We are in a fog' - ag investors' diary of US shutdown
Copy of the September Wasde report for downloading
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