Impact of WASDE reports on implied volatility in corn and soybean markets

Abstract

This study investigates the impact of U.S. Department of Agriculture World Agricultural Supply and Demand Estimate (WASDE) reports on implied volatility in corn and soybean markets over 1985 to 2002. If WASDE reports resolve uncertainty, implied volatility should drop immediately after release of the reports. Results show that WASDE reports lead to a statistically significant reduction of implied volatility that averages 0.7 percentage points for corn and 0.8 percentage points for soybeans. The magnitude of the reduction is largest for the group of WASDE reports containing both domestic and international situation and outlook information. This group of reports reduces implied volatility by an average of 1.1 percentage points in corn and by almost 1.5 percentage points in soybeans. Results also reveal that the market impact of WASDE reports is strongest in the most recent 1996 to 2002 subperiod. Overall, the results indicate that WASDE reports provide valuable information to corn and soybean market participants. [JEL classifications: Q100, Q110, Q130]. © 2008 Wiley Periodicals, Inc.

Futures Price Response to Crop Reports in Grain Markets

“…In Model A (based on Equation ), estimated coefficients for both crop report variables are statistically distinguishable from zero, being positive for USDA and negative for CONAB. This indicates that the conditional variance would increase with the announcement of new USDA reports, which is consistent with previous work (Isengildina‐Massa et al, ,; Karali, ; Lehecka, ; McKenzie, ). On the other hand, CONAB reports appear to reduce the conditional variance of soybean returns.…”

“…Results suggested no significant price reaction to the announcement of WASDE reports. Isengildina‐Massa et al () adopted a longer sample period (1985–2006) and event study framework, and found evidence that corn and soybean futures prices reacted to WASDE reports.…”

Trading Based on Knowing the Wasde Report in Advance

“…Price movements are larger following USDA reports (Isengildina, Irwin, and Good, 2006b). Similarly, Isengildina-Massa et al (2008a, 2008b) found that after WASDE reports containing NASS crop production reports were released, implied volatility in corn and soybean markets was reduced. Sumner and Mueller (1989) found that the harvest forecast reports released in the months of August, September, and October cause a greater change in corn and soybean market prices than other reports.…”

Sugar with your Coffee? Fundamentals, Financials, and Softs Price Uncertainty

“…Those three papers, however, look at realized volatility rather than at volatility expectations. 3 Beside Adjemian et al (2016), we are aware of only one other paper on what moves implied volatilities in agricultural markets: Isengildina, Irwin, Good, & Gomez's (2008) event study of the impact of WASDE reports on corn and soybean implied volatility. 4 For agricultural markets see, for example, Fackler & King (1990) and Egelkraut, Garcia, & Sherrick (2007).…”