THE VALUE OF USDA OUTLOOK INFORMATION: AN INVESTIGATION USING EVENT STUDY ANALYSIS

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.