Market Uncertainty and Sentiment around USDA Announcements
Presented by:
Michel Robe
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign
Friday, September 25, 2020
12:00 pm-1:15 pm
We examine empirically the impact of scheduled USDA information releases on uncertainty and sentiment in grains and oilseeds markets. We document that, for up to five trading days after the release of a scheduled USDA report (WASDE, stocks, prospective plantings, and acreage), agricultural option-implied (forward- looking) volatilities are significantly lower than they were a week before the release. These reports’ uncertainty-resolution power is similar in magnitude in the corn, soybeans, and wheat markets. In the case of WASDE, the implied volatility drops more when there had been greater disagreement among market experts in the run-up to a report. For corn and beans (but not wheat), the implied volatility drop following a WASDE or a grain stock report is smaller when the USDA information surprises the market. Except for wheat, we find little evidence that the tightness of grain inventories prior to a USDA report affects the market’s reaction. Finally, we show that contemporaneous changes in broad financial-market sentiment and macroeconomic uncertainty (jointly captured by the VIX event-day return) affects the extent to which agricultural markets respond to the USDA report. Link to most recent version: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3649137