Price discovery hindered by U.S. shutdown

With millions of commodities crossing the border daily, Canadian farm commodity groups are watching closely as U.S. legislators duke it out in a budgetary standoff.

“We export in one day $13 million in crops from Canada to the U.S.,” said J.P. Gervais, the chief agricultural economist for Farm Credit Canada, in an interview. Combine that with $6.5 million worth of livestock crossing over on a daily basis, and there is a lot at stake for Canada if the dispute over Obamacare that has shut down the partial government shutdown is prolonged.

Gervais said so far, there has been little impact on border crossings. The major effect for Canadian producers to date has been the loss of daily market information used by futures exchanges to settle contracts.

It appears unlikely the USDA will be able to deliver on the Oct. 11 WASDE (World Agricultural Supply And Demand Estimates), which is an important market trendsetter at this point in the production cycle, he said.

“It’s not unusual to see prices move and respond quite a bit to what is in that report,” Gervais said. “The markets really don’t like to be in the dark.”

Creation of the report, which affects prices of grains and other agricultural commodities around the world, starts at the farm level with two full weeks devoted to surveying growers and inspecting crops in thousands of fields.

No decision on rescheduling will be made until the government is back at work, a USDA spokesman said hours before the shutdown began Oct. 1.

Andrew Dickson, general manager of the Manitoba Pork Council has been watching the situation closely.

“The pricing in the U.S. is important, because our prices are based directly on the U.S. prices,” he said. “So if those numbers start going strange in terms of how accurate they are in terms of what is actually going on in the marketplace in terms of cash, then we could run into problems.”

Keystone Agricultural Producers president, Doug Chorney agreed the situation is worrisome.

“Any time you have the federal government of our biggest trading partner go into this sort of lockdown, we worry,” he said.

According to a livestock report sponsored by the CME Group, that stock exchange has already suspended the calculation and release of both their lean hog and feeder cattle indexes for the time being.

“There is no Canadian price,” said Dickson. “The American price is the Canadian price.”

“One certainly expects that this is going to be worked out shortly, and that this is not going to be a long-term situation, but you never really know,” said Chorney. “I can’t believe it’s gone on this long.”

Dickson noted that meat and border inspection services are still on the job although producers may want to spend some extra time preparing for any border crossings.

“We’re definitely concerned about possible impacts at the border,” Chorney said. “With so many people off the job around the country, even if essential services are maintained, people who need special paperwork, or permits could be impacted.”

He said anyone who regularly engages in cross-border commerce, should check with their customs broker before heading south.

“You take these things for granted, but you could quickly find the situation has changed,” Chorney said. “We have a very integrated North American ag economy.”

U.S. meat packers Smithfield Foods Inc. and Cargill Inc. said they are changing the methods they use to determine what price to pay for hogs because of the partial U.S. government shutdown.

The companies typically use data from the U.S. Department of Agriculture’s Agricultural Marketing Service to determine the cash value for hogs.

Smithfield, the largest U.S. pork packer, said in a letter to producers on Oct. 4 that it will begin using CME Group Inc. data to price hogs. CME owns the Chicago Mercantile Exchange, where livestock contracts are traded.

“We have determined that substituting the daily changes in the Chicago Mercantile Exchange lean hog market close for the day of harvest will most closely approximate changes in the USDA reported price during the period of time until the USDA resumes publishing,” Smithfield said in the letter.

The letter said the situation would be reviewed Oct. 12.

About the author


Shannon VanRaes is a journalist and photojournalist at the Manitoba Co-operator. She also writes a weekly urban affairs column for Metro Winnipeg, and has previously reported for the Winnipeg Sun, Outwords Magazine and the Portage Daily Graphic.



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