When does USDA information have the most impact on crop and livestock markets?

Abstract

This study compares the impact of Prospective Plantings, Acreage, Crop Production, Crop Production Annual Summary, Grain Stocks, WASDE, Cattle on Feed, and Hogs and Pigs reports on corn, soybean, wheat, cotton, live cattle, and lean hogs markets over 1985–2018. Simultaneous releases of several reports are handled by evaluating the impact of report clusters. Our approach allows us to demonstrate the relative impact of various information releases and shows when the markets tend to be affected the most. The findings of this study provide evidence and guidance for future policy decision regarding the role of USDA information in modern agricultural markets.

Introduction

The recent government shutdown that resulted in failure to release Annual Crop Production, Grain Stocks, Winter Wheat Seedings and World Agricultural Supply and Demand Estimates reports as scheduled on Friday, January 11, 2019, brought to the forefront the issue of the value of USDA information and its impact on commodity markets. Various media sources (e.g., Associated Press, Financial Times, DTN) pondered the consequences of this lapse of USDA report releases suggesting that “some private businesses see the shutdown as an opportunity to highlight their own data and analytic services” while others worry that “that the playing field is not as level as it would be with the USDA information.” (Good, 2019) Reuters reported that “To fill the void in data, traders and farmers are relying on private crop forecasters, satellite imagery firms and brokerages offering analyses on trade and supplies. Some have been scouring Twitter for tidbits on shifting weather patterns and rumors of grain exports, but say it is difficult to replace the USDA.” (Huffstutter and Polansek, 2019).

There is an extensive literature devoted to the impact of USDA information with most studies focusing on crop production (Sumner and Mueller, 1989; Fortenbery and Sumner, 1993; McNew and Espinosa, 1994; Baur and Orazem, 1994; Garcia et al., 1997; McKenzie, 2008), WASDE reports in grain markets (Isengildina et al., 2008a, 2008b; Adjemian, 2012), and Cattle on Feed and Hogs and Pigs reports in livestock markets (Colling and Irwin, 1990; Mann and Dowen, 1996; Schaefer et al., 2004; Isengildina et al., 2006; Karali et al., 2019a). However, in most cases the studies focus on a single report and do not take into account the release of other information, which may lead to an overestimation of impact of these reports. For example, WASDE reports are often released simultaneously with Crop Production reports and the individual report impact cannot be separated without additional information.¹ Furthermore, separate analyses make it difficult or impossible to compare impacts across various reports due to differences in methodology and time periods across studies.

The goal of this study is to examine when various USDA information releases cause the largest market reactions in crop and livestock markets over 1985 through 2018. Our study assesses the market impact of USDA information spanning multiple commodities (corn, soybeans, wheat, cotton, live cattle, and lean hogs) and multiple reports (Prospective Plantings, Acreage, Crop Production, Crop Production Annual Summary, Grain Stocks, WASDE, Cattle on Feed, and Hogs and Pigs), while taking simultaneous release of information, or report clustering, into account. We identify the release of most important USDA information for each month and group the reports that are released together in clusters. Market impact is measured for each monthly release over the period of study. Changes in market impact over time for most influential releases are also evaluated.

Market impact is measured using a traditional event study approach. The basic notion of the event study is simple: if prices react to the announcement of information (“the event”) in an efficient market, then the information is valuable to market participants (Campbell et al., 1997). In our study, the events are the releases of USDA information which may include single reports or report clusters, based on report release schedule that has remained fairly stable during the period of study.² Daily returns of nearby futures contracts for each commodity over 1985–2018 are used to measure market reaction. The impact of information is assessed by comparing futures return variability on information release sessions versus pre- and post-release sessions. Parametric and nonparametric tests are used to measure changes in futures return variability in response to information releases.

Results are examined focusing on the F-test as the most general and flexible measure of market impact that allows comparison across multiple reports and markets. First, we compare the impact of USDA information across monthly releases of various reports or report clusters for each commodity for the entire sample period. Second, we evaluate how the impact of the main sources of information has changed over time using a 15-year rolling analysis. The findings of this study will help identify the main sources of public information in crop and livestock markets, compare their impact across releases and commodities as well as demonstrate how this impact has changed over time. These findings will shed light on the relative value of various USDA information to commodity markets.