On Friday, January 11, the United States Department of Agriculture was supposed to release its January World Agricultural Supply and Demand Estimates (WASDE) report at noon Eastern Standard Time. In most of the agricultural futures markets, the monthly WASDE report is a highlight for producers, consumers, and traders because it provides market participants with the latest supply and demand data.
Each month, market analysts offer their estimates of production, consumption, export, and inventory data and the futures market tends to move when the consensus estimates vary from the USDA data. Last Friday, the USDA was silent at noon EST as the agency is closed because of the government shutdown.
While January 11 would have typically been a day of increased price variance in the soybean, corn, wheat, rice, oats, cotton, and meat futures markets, the price action was so quiet that you could hear a pin drop. The US is the world’s leading producer of many agricultural products, the impact of prices on the economy can be significant.
At the same time, the government shutdown means that many of the farmers who are suffering from the effects of the trade dispute between the United States and China are not receiving their government subsidy checks. The shutdown of the USDA also threatens the health and wellbeing of US citizens as the agency oversees the food supply.
Meanwhile, over 800,000 government workers did not get their paychecks last Friday. The issue over border security has created a situation where President Trump refuses to abandon his quest for a border wall, made of concrete or steel, along the southern border of the United States. The pledge of a wall was one of the primary issues that put him in office.
The new leadership of the House of Representatives has refused to give the President any funds for a wall. With both sides of the dispute digging in their heels, many government agencies including the USDA are operating on skeleton staffs and nonessential services have ground to a halt. The agricultural futures markets, farmers, government workers, and other parties that rely on government funding are suffering during the dispute. The longer the standoff continues, the impact will increase and spread to other sectors of the economy.
It may not be long before equities, and other financial markets experience increased volatility. The US government is a giant bureaucracy that employs over two million workers excluding the military and the post office. A continuation of the shutdown will cause severe economic problems for those workers who depend on paychecks for rent, mortgages, food, energy, and other consumer products. The effects will begin to filter through to economic data such as GDP growth, unemployment, retail sales, industrial production, manufacturing, CPI and PPI, and other indicators that guide markets across all asset classes. The US is the world’s leading economy, and a prolonged furlough of workers with no paychecks is a clear and present danger to economic health. Government contractors are likely to experience delays in payments. While Congress and the President promised they would make workers whole with backpay, that is not helping them, or the economy, in the short-term.
We must keep our eyes on the government shutdown as the longer it continues, the more we will see the effects ripple across markets like a tsunami. Meanwhile, agricultural markets are trading in the dark given the lack of supply and demand data.