The Macroeconomic Effects of Agricultural Supply News

Abstract

Weather shocks are exogenous to the macroeconomy, but their market-wide effects are rarely isolated and studied empirically. Given its exposure and sensitivity to these shocks, the agriculture sector offers a useful source of such variation. We develop a new instrument based on market responses to confidential government crop reports, to measure their impact on the broader economy. Although it holds more sector-level explanatory power, our results indicate that a commodity news shock normalized to the impact of news about an upcoming poor harvest reduces domestic real GDP, industrial production, equity prices, grain exports, global oil production, the price of dry bulk shipping services, and the quantity of food-at-home consumed, while raising core CPI, stock market volatility, the price for U.S. field crop commodities, and food-at-home.

Keywords: USDA news, agricultural commodity prices, macroeconomic effects, proxy SVAR