How the Release of USDA Outlook Reports Impacts Commodity Returns
USDA’s premier situation and outlook report, World Agricultural Supply and Demand Estimates (WASDE), draws together domestic and foreign supply, demand, and trade data for key U.S. commodities and has been published before the opening of major domestic futures markets between the 8th and the 12th day of each month.
According to economic theory, the price of a commodity changes when traders learn new information about its supply-and-demand fundamentals. Consequently, the value of new information to the market can be calculated by the difference in commodity price before and after the report is released.
Based on that principle, ERS researchers tested cotton, soybean, and hard winter wheat futures prices for significant changes immediately following WASDE publication over the 30-year period 1981-2010. The research was complicated by the many factors that can affect commodity futures prices, including unexpected shocks, such as weather events, seasonality effects, and inventory levels.
In addition, futures prices tend to grow more volatile as a futures contract nears expiry. In 2002, for example, commodity futures prices clearly spiked in certain WASDE publication periods but also experienced significant volatility throughout the year.
This chart is found in the June 2012 issue of Amber Waves magazine.