Brought to you by AG Concepts

Friday, January 18, 2019

My shutdowns are the greatest shutdowns

By Andrew Whitelaw  |  Source: CME, Mecardo

2019-01-18 Grain 1

2019-01-18 Grain 2

2019-01-18 Grain 3

The market trades based on information. The largest source of publicly available information is currently on a record-breaking holiday thanks to the US government shutdown. What impact does this have?

January is typically a quiet month for overseas markets. This month has been no exception to the rule. Chicago wheat futures are unchanged week on week in both US$ and A$ terms (Figure 1). The US will receive snow cover during the weekend, which will benefit the development of the crop. It provides protection against forecast cold snaps.   

According to Trump, he is the best at a number of tasks. His ability is generally self-assessed; however, he is currently the record holder for presiding over the longest government shutdown in US history at 27 days.  The president is currently unable to get his budget approved due to his insistence on US$8bn to build a wall between Mexico and the US.

The shutdown has resulted in 100’s of thousands of government employees being furloughed. The biggest impact to agriculture at present is that the USDA is no longer releasing any new data including export, production and the WASDE report. Although there are many private forecasts available, the USDA data is usually a starting point for the trade.

The longer a shutdown continues the bigger the impact on the US economy. The US government estimates that quarterly growth will reduce by 0.13% per week. This is due to the impact of government workers having less income to spend/invest. The slow down in growth will likely slow down the pace of any US interest rate rises, which are now not expected until Q3 at the earliest.

At a local level, the Australian crop is largely complete. The only area continuing to harvest is Tasmania, which has experienced a fantastic growing season with conditions almost perfect. This has necessitated the construction of additional storage (see here) by Tasmania’s main storage and handling company. 

This season has seen very little harvest pressure, as demand on the east coast has stripped supply. The basis levels have largely remained flat since the start of harvest (Figure 3), with the exception of WA. These basis levels remain at post-deregulation record levels and are liable to remain strong through until at least the middle of the year. 

The week ahead

As the government shutdown continues, there will be less and less current data available for the trade. However, most of the market uses USDA data alongside privately held data. At present, there seems to be no end in sight to the shutdown, with Trump holding his ground.  

The real driver in coming weeks will be whether Russia can maintain its export pace and weather conditions in the northern hemisphere.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

x

Sign up for a FREE BASIC SUBSCRIPTION now to read this article.

Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published.  You will also receive one month Premium access for free.

You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.

Learn more about Mecardo Sign Up Now!