If you want to get a rise out of a farm audience, just mention USDA reports. To people outside of ag this is mystifying. Why would something as unexciting as government data reports be so controversial? The answer is that USDA reports have an outsized market impact on grain and livestock prices. There are few government macro reports that consistently have the market impact of, say, USDA crop production reports. If one of these reports moves the market in a way that drives down prices, especially when the impact is very surprising and large (see 2019), farmers tend to blame the messenger. Just the way it is.
When I started my academic career over 40 years ago, you could count on one hand the number of studies of USDA reports. Over the years, this has become a very active area of research within agricultural economics. This has been especially true in the last decade or so. The time was ripe for a survey article to take stock of what we have learned from all this research on USDA reports. The literature turned out to be so large that my colleagues Olga Isengildina Massa of Virginia Tech and Berna Karali of Georgia and I decided it would take two survey papers to do justice to the literature. I was beyond fortunate to be able to work with such talented individuals on this project.
Our first survey paper is titled, “What Do We Know About the Value and Market Impact of the US Department of Agriculture Reports?” It was published in journal Applied Economic Perspectives and Policy earlier this year. As the title suggests, the focus of this paper is on the market impact of USDA reports. Here is the abstract:
The purpose of this paper is to comprehensively review the literature on the value and impact of the US Department of Agriculture (USDA) reports and discuss theoretical issues and empirical evidence. Only a handful of studies provide direct estimates of the welfare benefits of USDA information using a rational expectations framework in storable commodity markets. Most studies examine partial evidence of welfare benefits associated with market response to USDA information. These studies include examinations of the impacts of USDA report releases on cash and futures price volatility and other market dynamics, impacts of report releases on options implied volatility, impacts of unanticipated information in USDA reports, as well as informational value, returns, and survey-based studies. We discuss the methodological and empirical contributions of these studies as well as their shortcomings and potential opportunities for future work.
Our second survey paper is titled, “Are USDA Forecasts Optimal? A Systematic Review,” which was just published in the Journal of Agricultural and Applied Economics. The focus of this survey is on the accuracy of USDA forecasts. The abstract for this survey follows:
The goal of this paper is to systematically review the literature on United States Department of Agriculture (USDA) forecast evaluation and critically assess their methods and findings. The fundamental characteristics of optimal forecasts are bias, accuracy and efficiency as well as encompassing and informativeness. This review revealed that the findings of these studies can be very different based on the forecasts examined, commodity, sample period, and methodology. Some forecasts performed very well, while others were not very reliable, resulting in forecast specific optimality record. We discuss methodological and empirical contributions of these studies as well as their shortcomings and potential opportunities for future work.
If you read these survey papers, you will find that I have been an active contributor to this literature. Why have I devoted so much of my career to this topic? That is a good question. I’m sure it has something to do with the conspiracy theories I heard about the USDA growing up on our Iowa farm. It probably also has something to do with my misadventures speculating in the grain futures markets around the release of USDA crop reports. Nothing like losing money to focus one’s mind. Reminds me of a movie I once saw…
Laurence J. Norton Chair of Agricultural Marketing
University of Illinois at Urbana-Champaign
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