A recent Economic Research Service study found USDA-released reports detailing agricultural production and stocks do in fact play a role in influencing commodity futures’ prices.
In the past, researchers have studied how the monthly World Agricultural Supply and Demand Estimates (WASDE) report can influence the expected volatility of a commodity’s futures price. However, the actual influencing variable was typically unidentified. In addition, whether USDA projections are a better or worse predictor of harvest prices for specific commodities was often overlooked. Past studies also evaluated projections from only one or two months out of the year, failing to relate the projections’ impact to USDA’s changing projections.
The newest study concluded corn-output projections are an important variable in influencing corn futures. The projections significantly impact futures, even when accounting for impacts of other WASDE projections such as projected stocks, consumption and season average prices. August and September reports also have a stronger influence on prices than reports released earlier in the crop season.
“Notably, this study shows that USDA projections—on average—drive the futures price closer to the actual October harvest price,” the report read.
For example, corn futures in May are on average 1.01 percent closer to the harvest price than they would have been without the release of WASDE. In June, futures prices are 4.18 percent closer to the harvest price due to the report’s projections. In September, the projections bring the futures 3.56 percent closer to the harvest price.
The study also showed the WASDE report influences different representations of the daily futures prices, with distinctly different daily opening and closing prices. The projections increased the spread between the daily low and high prices during the summer and early fall months, but by October, markets were likely impacted by additional information other than the WASDE projections.
“The findings of this study can aid policymakers to better understand the role that USDA plays in influencing the corn futures, and it allows market participants to better understand how USDA forecasts influence prices in the futures market,” the report concluded. “This, in turn, may influence how traders view USDA forecasts.” — Anna Miller, WLJ managing editor