Market Uncertainty and Sentiment around USDA Announcements

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