Market uncertainty and sentiment around USDA announcements

Abstract

We investigate forward‐looking commodity price volatility expectations (proxied by option‐implied volatilities or IVols) around scheduled US Department of Agriculture (USDA) reports. We show that corn and soybean IVols are significantly lower for several trading days after a report. The IVol response to a release depends on agricultural market experts' disagreement and sentiment before the USDA report, and on the extent to which the USDA information surprises the market. Whereas commodity IVols are generally positively related to financial‐market sentiment and macroeconomic uncertainty (jointly captured by the volatility index [VIX]), this comovement breaks down on report days—with the VIX and commodity IVols moving in opposite directions.

What do we know about the value and market impact of the US Department of Agriculture reports?

“…Furthermore, it appeared that the impact of these reports increased during the later sub‐period associated with greater market uncertainty. Cao and Robe (2022) extended these findings to demonstrate that market uncertainty in corn and soybean markets decreased not only immediately following the report release but remained low for up to 5 days after the release of WASDE, Grain Stocks, Prospective Plantings, and Acreage reports. These authors also accounted for other market factors.…”

The effect of macroeconomic news announcements on the implied volatility of commodities: The role of survey releases

“…Regarding commodity markets, the impact of scheduled news releases on implied volatility has mainly been explored by considering sector‐specific news related to the oil market (Horan et al, 2004; Nikkinen & Rothovius, 2019) and agricultural markets (Cao & Robe, 2021; Isengildina‐Massa et al, 2008). To the best of our knowledge, López (2018) is the only related study that has investigated the reaction of the implied volatility in crude oil markets following the release of macroeconomic data.…”