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The Value Of Usda Outlook Information: An Investigation Using Event Study Analysis

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  • Irwin, Scott H.
  • Good, Darrel L.
  • Gomez, Jennifer K.

Abstract

The economic value of public situation and outlook information has long been a subject of debate. The purpose of this paper is to investigate the economic value of USDA WASDE reports in corn and soybean markets. The investigation is based on event study analysis, with the "events" consisting of the release of all monthly USDA WASDE reports for corn and soybeans from 1985 through 1998. The WASDE reports during the sample period are divided into two groups: one that represents "pure" outlook information and one that represents a "mix" of situation and outlook information. The statistical tests can be placed into two categories: mean price reaction and volatility reaction. Overall, the results suggest that USDA outlook information has a significant impact in corn and soybean markets. The most notable impact is found in options markets, where implied volatility consistently declines after the release of WASDE reports. For the group of monthly reports containing only outlook information, implied volatility for both corn and soybeans was lower on the report day than on the previous day about 60 percent of the time. The difference in mean implied volatility on the day of the report and on the previous day for both corn and soybeans was significantly different from zero. The average magnitude of the drop was between about two- and three-tenths of a percentage point (of annualized implied volatility), which would appear to be an economically non-trivial decrease. Hence, it can be concluded that USDA outlook information reduces the uncertainty of market participants' expected distribution of future prices. This reduction in market uncertainty is unambiguously welfare-enhancing.

Suggested Citation

  • Irwin, Scott H. & Good, Darrel L. & Gomez, Jennifer K., 2001. "The Value Of Usda Outlook Information: An Investigation Using Event Study Analysis," 2001 Conference, April 23-24, 2001, St. Louis, Missouri 18948, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:ncrone:18948
    DOI: 10.22004/ag.econ.18948
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    Citations

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    Cited by:

    1. Ying, Jiahui & Shonkwiler, J. Scott, 2017. "A Temporal Impact Assessment Method for the Informational Content of USDA Reports in Corn and Soybean Futures Markets," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258201, Agricultural and Applied Economics Association.
    2. Bahram Sanginabadi, 2018. "USDA Forecasts: A meta-analysis study," Papers 1801.06575, arXiv.org.
    3. Dorfmann, Jeffrey & Karali, Berna, 2015. "A Nonparametric Search for Information Effects from USDA Reports," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(1), pages 1-20.
    4. Good, Darrel L. & Irwin, Scott H., 2005. "Understanding USDA Corn and Soybean Production Forecasts: Methods, Performance and Market Impacts over 1970 - 2004," AgMAS Project Research Reports 14785, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    5. Karali, Berna, 2012. "Do USDA Announcements Affect Comovements Across Commodity Futures Returns?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(1), pages 1-21, April.
    6. Good, Darrel L. & Irwin, Scott H., 2003. "Understanding USDA Corn and Soybean Production Forecasts: An Overview of Methods, Performance and Market Impacts," AgMAS Project Research Reports 37496, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    7. Sanders, Dwight R. & Manfredo, Mark R., 2002. "Usda Production Forecasts For Pork, Beef, And Broilers: An Evaluation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(1), pages 1-14, July.
    8. repec:ags:jrapmc:122315 is not listed on IDEAS
    9. Sanders, Dwight R. & Manfredo, Mark R. & Boris, Keith, 2008. "Accuracy and efficiency in the U.S. Department of Energy's short-term supply forecasts," Energy Economics, Elsevier, vol. 30(3), pages 1192-1207, May.
    10. Pruitt, J. Ross & Tonsor, Glynn T. & Brooks, Kathleen R. & Johnson, Rachel J., 2013. "End User Preferences for USDA Market Information," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 143007, Southern Agricultural Economics Association.
    11. Pierrick Piette, 2019. "Can Satellite Data Forecast Valuable Information from USDA Reports ? Evidences on Corn Yield Estimates," Working Papers hal-02149355, HAL.
    12. Good, Darrel L. & Irwin, Scott H. & Isengildina, Olga, 2006. "The Value of USDA Situation and Outlook Information in Hog and Cattle Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(2), pages 1-21, August.
    13. Ferris, John N., 2010. "The USDA/Land Grant Extension Outlook Program -- A History and Assessment," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 101723, Agricultural and Applied Economics Association.
    14. Sanders, Dwight R. & Manfredo, Mark R., 2003. "USDA Livestock Price Forecasts: A Comprehensive Evaluation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(2), pages 1-19, August.

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    Keywords

    Crop Production/Industries; Marketing;

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