‘We Might as Well Settle the Hog Futures Contract to the Price of Peaches’; Shutdown Shuts Down U.S. Data, So Commodities Traders Fly Blind

October 11, 2013, 3:48 p.m. ET

Shutdown Shuts Down U.S. Data, So Commodities Traders Fly Blind

‘We Might as Well Settle the Hog Futures Contract to the Price of Peaches’

ALEXANDRA WEXLER

NEW YORK—Commodities traders and investors are struggling to stay on top of their markets as the U.S. government shutdown cuts off the flow of data they rely on to place bets on everything from corn to cotton to oil. Since the shutdown began on Oct. 1, the government has stopped polling farmers about the state of their crops and also isn’t releasing data on the import and export of raw materials, among other tasks. On Friday, the U.S. Energy Information Administration, one of the few agencies still collecting and releasing data, said it would cease publishing its weekly oil supply and demand surveys for the first time since the surveys began in 1979.The lack of data has left traders in the dark about some key pieces of the supply and demand puzzle that determines prices for most commodities. Many are cobbling together data from private sources, or relying on the last figures compiled before the shutdown, many of which are already out of date.

The shutdown hasn’t had a major price impact, though it has driven down volume in a few markets where alternative data sources are scarce, including livestock. Some traders say the longer the blackout, the greater the risk of violent price moves when the government reopens, particularly if official surveys on crop exports and oil inventories don’t match estimates traders made during the shutdown.

“It’s hard to make prudent investment decisions when you don’t have” government data, said Bill Collard, president of The Futures Management Group, a brokerage in Fern Park, Fla. Mr. Collard and his clients have liquidated many of their bets in the futures markets, he said. “Not having any reports is pretty much gambling–it’s kind of like Russian roulette.”

The U.S. Department of Agriculture has stopped publishing market-moving data, such as weekly crop progress reports and export sales, including its monthly World Agricultural Supply and Demand Estimates report, which was supposed to be released Friday.

“It’s really been a huge issue” to trade without USDA data, said John Payne, senior broker and market strategist at Daniels Trading, a Chicago brokerage.

He said the USDA is perceived as an “unbiased source–they’re the official scorekeepers.”

The EIA’s weekly oil inventory report, published Wednesday mornings, will also be hard to replace by piecing together private bits of information, investors say. The data, which tracks the amount of oil imported, stockpiled, or consumed by refiners, regularly sends oil futures up or down.

Todd Gross, chief investment officer of Qeri LLC, a New York investment firm that specializes in energy, said many traders and fund managers already piece together similar data from third party providers. But he called the EIA data “a yardstick” for the market, adding that obtaining private data costs roughly $100,000 a year.

Genscape, Inc., which gathers information on oil inventories through methods including aircraft flyovers above crude storage tanks, said it planned to make some of its data available for free to market participants next week, once the EIA stops publishing.

Informa Economics, Inc., a private forecaster, is trying to fill a similar gap in agricultural markets by offering a report similar to the USDA’s monthly supply-and-demand estimates for free on Friday. It was the first time the firm offered its reports for free in more than 35 years, said Chief Executive Bruce Scherr.

The shutdown is causing more problems in the livestock market, where less data is available from private sources, said Lane Broadbent, a broker at KIS Futures in Oklahoma City. Cattle ranchers usually get their data from the government, but without that information, they’re forced to contact people who are familiar with prices at auctions in places like Oklahoma City, home of the country’s biggest cattle sale barn.

“It inhibits the ability of the general public,” Mr. Broadbent said. “Some guy sitting in a tractor in the Texas Panhandle, he’s going to have a hard time with it because he can’t get onto the USDA website, so it’s harder for him to know what’s going on.”

For some, the absence of government data has created a trading opportunity.

“I have quite a short position in corn and if this Friday that (USDA supply-and-demand) report was coming out … I’d probably cut some of that,” said Mike Seery, president of Seery Futures, a brokerage in Plainfield, Ill. “But since there’s no report, I’m just staying with it.”

In the hogs market, trading activity has plunged. Since the Monday before the government shutdown began, trading volume in lean-hog futures on the Chicago Mercantile Exchange has tumbled 34%. The contract’s expiration price is normally set using a cash price reported by the USDA. The exchange will use a price based off futures trading while the agency is closed, but some traders are concerned that won’t be as accurate.

“We might as well settle the hog futures contract to the price of peaches,” said Dan Norcini, an independent livestock trader in Idaho.