IDEAS home Printed from https://ideas.repec.org/p/ags/aaea16/235507.html
   My bibliography  Save this paper

Market Reaction to Inefficiencies in USDA Crop Production Forecasts

Author

Listed:
  • Isengildina-Massa, Olga
  • Karali, Berna
  • Irwin, Scott H.

Abstract

This study evaluates whether smoothing (positive correlation in subsequent revisions) in USDA corn, soybean, and wheat production forecasts is likely to result in misallocation of economic resources. Smoothing, like any other type of forecast inefficiency, implies that some of the information in these forecasts is predictable. Based on the evidence of smoothing, we decomposed market surprise and forecast revision into predictable and unpredictable components. Our results show that futures markets tended to react only to the unpredictable component, therefore indicating that market participants were aware of smoothing and adjusted for it in forming their price expectations.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Isengildina-Massa, Olga & Karali, Berna & Irwin, Scott H., 2016. "Market Reaction to Inefficiencies in USDA Crop Production Forecasts," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235507, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:235507
    DOI: 10.22004/ag.econ.235507
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/235507/files/Isengildina_Market%20Reaction_AAEA.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.235507?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David E. Runkle, 1991. "Are Farrowing Intentions Rational Forecasts?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 594-600.
    2. David E. Runkle, 1992. "Do futures markets react efficiently to predictable errors in Government Announcements?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 12(6), pages 635-643, December.
    3. Frank, Julieta & Garcia, Philip & Irwin, Scott H., 2008. "To What Surprises Do Hog Futures Markets Respond?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(1), pages 1-15, April.
    4. Frank, Julieta & Garcia, Philip & Irwin, Scott H., 2008. "To What Surprises Do Hog Futures Markets Respond?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(1), pages 73-87, April.
    5. Olga Isengildina & Scott H. Irwin & Darrel L. Good, 2006. "Are Revisions to USDA Crop Production Forecasts Smoothed?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 1091-1104.
    6. Orlen Grunewald & Mark S. McNulty & Arlo W. Biere, 1993. "Live Cattle Futures Response to Cattle on Feed Reports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(1), pages 131-137.
    7. Garcia, Philip & Irwin, Scott H. & Leuthold, Raymond M. & Yang, Li, 1997. "The value of public information in commodity futures markets," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 559-570, April.
    8. Falk, Barry L. & Orazem, Peter, 1989. "Measuring Market Responses to Error-Ridden Government Announcements," Staff General Research Papers Archive 11096, Iowa State University, Department of Economics.
    9. Irwin, Scott H. & Sanders, Dwight R. & Good, Darrel L., 2014. "Evaluation of Selected USDA WAOB and NASS Forecasts and Estimates in Corn and Soybeans," Marketing and Outlook Research Reports 183477, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    10. Xiao, Jinzhi & Lence, Sergio H. & Hart, Chad, 2014. "Usda And Private Analysts' Forecasts Of Ending Stocks: How Good Are They?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170642, Agricultural and Applied Economics Association.
    11. Phil L. Colling & Scott H. Irwin, 1990. "The Reaction of Live Hog Futures Prices to USDA Hogs and Pigs Reports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 84-94.
    12. Irwin, Scott & Sanders, Dwight & Good, Darrel, 2014. "Evaluation of Selected USDA WAOB and NASS Forecasts and Estimates in Corn and Soybeans," farmdoc daily, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, vol. 4, January.
    13. Egelkraut, Thorsten M. & Garcia, Philip & Irwin, Scott H. & Good, Darrel L., 2003. "An Evaluation of Crop Forecast Accuracy for Corn and Soybeans: USDA and Private Information Agencies," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(1), pages 1-17, April.
    14. Jeffrey B. Mills & Ted C. Schroeder, 2004. "Are cattle on feed report revisions random and does industry anticipate them?," Agribusiness, John Wiley & Sons, Ltd., vol. 20(3), pages 363-374.
    15. Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2004. "Does The Market Anticipate Smoothing In Usda Crop Production Forecasts?," 2004 Annual meeting, August 1-4, Denver, CO 20145, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Berna Karali & Scott H. Irwin & Olga Isengildina‐Massa, 2020. "Supply Fundamentals and Grain Futures Price Movements," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 548-568, March.
    2. Fiechter, Chad & Kuethe, Todd & Zhang, Wendong, 2023. "Information Rigidities and Farmland Value Expectations," ISU General Staff Papers 202306131414240000, Iowa State University, Department of Economics.
    3. Jesse Tack & Keith H. Coble & Robert Johansson & Ardian Harri & Barry J. Barnett, 2019. "The Potential Implications of “Big Ag Data” for USDA Forecasts," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(4), pages 668-683, December.
    4. Adrian Fernandez‐Perez & Bart Frijns & Ivan Indriawan & Alireza Tourani‐Rad, 2019. "Surprise and dispersion: informational impact of USDA announcements," Agricultural Economics, International Association of Agricultural Economists, vol. 50(1), pages 113-126, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Berna Karali & Scott H. Irwin & Olga Isengildina‐Massa, 2020. "Supply Fundamentals and Grain Futures Price Movements," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 548-568, March.
    2. Bahram Sanginabadi, 2018. "USDA Forecasts: A meta-analysis study," Papers 1801.06575, arXiv.org.
    3. Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2004. "Does The Market Anticipate Smoothing In Usda Crop Production Forecasts?," 2004 Annual meeting, August 1-4, Denver, CO 20145, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Karali, Berna & Isengildina-Massa, Olga & Irwin, Scott H. & Adjemian, Michael K. & Johansson, Robert, 2019. "Are USDA reports still news to changing crop markets?," Food Policy, Elsevier, vol. 84(C), pages 66-76.
    5. MacDonald, Stephen & Ash, Mark & Cooke, Bryce, 2017. "The Evolution of Inefficiency in USDA’s Forecasts of U.S. and World Soybean Markets," MPRA Paper 87545, University Library of Munich, Germany.
    6. Frank, Julieta & Garcia, Philip & Irwin, Scott H., 2008. "To What Surprises Do Hog Futures Markets Respond?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(1), pages 73-87, April.
    7. Matthew Houser & Berna Karali, 2020. "How Scary Are Food Scares? Evidence from Animal Disease Outbreaks," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(2), pages 283-306, June.
    8. Michael K Adjemian & Robert Johansson & Andrew McKenzie & Michael Thomsen, 2018. "Was the Missing 2013 WASDE Missed?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 40(4), pages 653-671, December.
    9. Aulerich, Nicole M. & Irwin, Scott H. & Nelson, Carl H., 2007. "The Impact of Measurement Error on Estimates of the Price Reaction to USDA Crop Reports," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37579, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    10. Lehecka, Georg V., 2014. "The Value of USDA Crop Progress and Condition Information: Reactions of Corn and Soybean Futures Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(1), pages 1-18, April.
    11. Olga Isengildina-Massa & Scott H. Irwin & Darrel L. Good & Jennifer K. Gomez, 2008. "Impact of WASDE reports on implied volatility in corn and soybean markets," Agribusiness, John Wiley & Sons, Ltd., vol. 24(4), pages 473-490.
    12. R. Karina Gallardo & B. Wade Brorsen & Jayson Lusk, 2010. "Prediction markets: an experimental approach to forecasting cattle on feed," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 70(3), pages 414-426, November.
    13. Adjemian, Michael K. & Johansson, Robert & McKenzie, Andrew & Thomsen, Michael, 2016. "The Value of Government Information in an Era of Declining Budgets," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235811, Agricultural and Applied Economics Association.
    14. Isengildina-Massa, Olga & Cao, Xiang & Karali, Berna & Irwin, Scott H. & Adjemian, Michael & Johansson, Robert C., 2021. "When does USDA information have the most impact on crop and livestock markets?," Journal of Commodity Markets, Elsevier, vol. 22(C).
    15. Ying, Jiahui & Shonkwiler, J. Scott, 2017. "A Temporal Impact Assessment Method for the Informational Content of USDA Reports in Corn and Soybean Futures Markets," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258201, Agricultural and Applied Economics Association.
    16. Isengildina-Massa, Olga & Irwin, Scott H. & Good, Darrel L. & Gomez, Jennifer K., 2008. "The Impact of Situation and Outlook Information in Corn and Soybean Futures Markets: Evidence from WASDE Reports," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(1), pages 89-103, April.
    17. R. Xie & O. Isengildina-Massa & G. P. Dwyer & J. L. Sharp, 2016. "The impact of public and semi-public information on cotton futures market," Applied Economics, Taylor & Francis Journals, vol. 48(36), pages 3416-3431, August.
    18. Good, Darrel L. & Irwin, Scott H. & Isengildina, Olga, 2006. "The Value of USDA Situation and Outlook Information in Hog and Cattle Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(2), pages 1-21, August.
    19. Lehecka, Georg V., 2013. "The Reaction of Corn and Soybean Futures Markets to USDA Crop Progress and Condition Information," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142491, Southern Agricultural Economics Association.
    20. McKenzie, Andrew M. & Thomsen, Michael R., 2001. "The Effect Of E. Coli O157:H7 On Beef Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(2), pages 1-14, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea16:235507. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.