Market Uncertainty and Sentiment around USDA Announcements

2020 Agricultural & Applied Economics Association, Annual Meeting, Kansas City, MO, July 26-28, 2020 (Updated March 2021)

58 Pages Posted: 16 Apr 2021

See all articles by An Cao

An Cao

Institute for Food and Resource Economics (ILR), Faculty of Agriculture, University of Bonn

Michel A. Robe

University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: March 22, 2021

Abstract

We provide comprehensive evidence that USDA reports substantially impact uncertainty and sentiment in agricultural markets. For up to five trading days after a scheduled release (WASDE, GS—Grain Stocks, Prospective Plantings, Acreage), option-implied volatilities (IVols) are significantly lower than a week earlier. On average, the reports’ uncertainty resolution power is similar in magnitude for corn, soybeans, and wheat. The benefit of the USDA information is greater when there is more disagreement among market analysts in the run-up to a report (WASDE). It is smaller when the USDA news surprise the market—typically when the surprise is price-bullish (WASDE and GS) but also when the surprise is bearish (GS). While commodity IVols are often positively related to financial-market sentiment and to macroeconomic uncertainty (jointly captured by the VIX index), this co-movement breaks down on USDA report days—with the VIX and commodity IVols moving in opposite directions. Finally, in the case of the critical GS reports, the market-calming effect of USDA news is larger when analysts had been pessimistic about stock levels—that is, expert sentiment matters.

Keywords: Commodities, Scheduled News, Forward-Looking Volatility, Uncertainty, Market Sentiment

JEL Classification: Q11, G14, G13, G41, Q13

Suggested Citation

Cao, An and Robe, Michel A., Market Uncertainty and Sentiment around USDA Announcements (March 22, 2021). 2020 Agricultural & Applied Economics Association, Annual Meeting, Kansas City, MO, July 26-28, 2020 (Updated March 2021), Available at SSRN: https://ssrn.com/abstract=3649137 or http://dx.doi.org/10.2139/ssrn.3649137

An Cao (Contact Author)

Institute for Food and Resource Economics (ILR), Faculty of Agriculture, University of Bonn ( email )

D-53113 Bonn
Germany

Michel A. Robe

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

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