IDEAS home Printed from https://ideas.repec.org/a/bla/jageco/v76y2025i3p651-665.html

The Announcement Volatility Risk Premium in Agricultural Markets: Evidence From USDA Report Releases

Author

Listed:
  • Xinyue He
  • Siyu Bian

Abstract

The release of major reports by the U.S. Department of Agriculture (USDA) has been documented to induce significant price volatility in agricultural futures markets, yet its implication on the pricing of agricultural options is much less understood. This study develops an announcement jump model to disentangle the option‐implied volatility specifically associated with monthly World Agricultural Supply and Demand Estimates (WASDE) report releases. Using data for corn, soybeans and wheat, we find evidence that these options are overpriced primarily with respect to the realised volatility observed on announcement days rather than on normal trading days, suggesting the existence of an announcement volatility risk premium. A long straddle position, formed by the simultaneous purchase of a call and a put option and providing protection against large price movements in either direction, generates a significant loss of 3%–7% only on report release days. Furthermore, we show that this negative return is unlikely driven by exposure to other risks and is more pronounced when the experts' forecast dispersion is high, indicating that market participants pay to hedge extreme volatility induced by announcements in agricultural markets.

Suggested Citation

  • Xinyue He & Siyu Bian, 2025. "The Announcement Volatility Risk Premium in Agricultural Markets: Evidence From USDA Report Releases," Journal of Agricultural Economics, Wiley Blackwell, vol. 76(3), pages 651-665, September.
    • Handle: RePEc:bla:jageco:v:76:y:2025:i:3:p:651-665
    DOI: 10.1111/1477-9552.12647
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1477-9552.12647
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1477-9552.12647?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
    ---><---

    References listed on IDEAS

    as
    1. Kevin P. McNew & Juan Andres Espinosa, 1994. "The informational content of USDA crop reports: Impacts on uncertainty and expectations in grain futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 14(4), pages 475-492, June.
    2. Karali, Berna & Thurman, Walter N., 2010. "Components of Grain Futures Price Volatility," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), pages 1-16, August.
    3. Andrew McKenzie & Michael Thomsen & Josh Phelan, 2007. "How do you straddle hogs and pigs? Ask the Greeks!," Applied Financial Economics, Taylor & Francis Journals, vol. 17(7), pages 511-520.
    4. 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).
    5. Bjursell, Johan & Gentle, James E. & Wang, George H.K., 2015. "Inventory announcements, jump dynamics, volatility and trading volume in U.S. energy futures markets," Energy Economics, Elsevier, vol. 48(C), pages 336-349.
    6. Christensen, Kim & Timmermann, Allan & Veliyev, Bezirgen, 2025. "Warp speed price moves: Jumps after earnings announcements," Journal of Financial Economics, Elsevier, vol. 167(C).
    7. Steen Koekebakker & Gudbrand Lien, 2004. "Volatility and Price Jumps in Agricultural Futures Prices—Evidence from Wheat Options," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1018-1031.
    8. Gurdip Bakshi & Nikunj Kapadia & Dilip Madan, 2003. "Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options," The Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 101-143.
    9. Goyal, Raghav & Adjemian, Michael K., 2021. "The 2019 government shutdown increased uncertainty in major agricultural commodity markets," Food Policy, Elsevier, vol. 102(C).
    10. Wu, Feng & Myers, Robert J. & Guan, Zhengfei & Wang, Zhiguang, 2015. "Risk-adjusted implied volatility and its performance in forecasting realized volatility in corn futures prices," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 260-274.
    11. Brittain, Lee & Garcia, Philip & Irwin, Scott H., 2011. "Live and Feeder Cattle Options Markets: Returns, Risk, and Volatility Forecasting," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(01), pages 1-20, April.
    12. Martijn Cremers & Michael Halling & David Weinbaum, 2015. "Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 70(2), pages 577-614, April.
    13. Patell, James M. & Wolfson, Mark A., 1979. "Anticipated information releases reflected in call option prices," Journal of Accounting and Economics, Elsevier, vol. 1(2), pages 117-140, August.
    14. Peter Reinhard Hansen & Asger Lunde, 2005. "A Realized Variance for the Whole Day Based on Intermittent High-Frequency Data," Journal of Financial Econometrics, Oxford University Press, vol. 3(4), pages 525-554.
    15. Egelkraut, Thorsten M. & Garcia, Philip, 2006. "Intermediate Volatility Forecasts Using Implied Forward Volatility: The Performance of Selected Agricultural Commodity Options," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(3), pages 1-21, December.
    16. GIOT, Pierre, 2003. "The information content of implied volatility indexes for forecasting volatility and market risk," LIDAM Discussion Papers CORE 2003027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. 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.
    18. Patell, Jm & Wolfson, Ma, 1981. "The Ex Ante And Ex Post Price Effects Of Quarterly Earnings Announcements Reflected In Option And Stock-Prices," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 19(2), pages 434-458.
    19. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
    20. Barry K Goodwin & Ardian Harri & Roderick M Rejesus & Keith H Coble, 2018. "Measuring Price Risk in Rating Revenue Coverage: BS or No BS?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(2), pages 456-478.
    21. Pierre Giot, 2003. "The information content of implied volatility in agricultural commodity markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(5), pages 441-454, May.
    22. Ederington, Louis H. & Lee, Jae Ha, 1996. "The Creation and Resolution of Market Uncertainty: The Impact of Information Releases on Implied Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(4), pages 513-539, December.
    23. Wenwen Xi & Dermot Hayes & Sergio Horacio Lence, 2019. "Variance risk premia for agricultural commodities," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 79(3), pages 286-303, May.
    24. Dew-Becker, Ian & Giglio, Stefano & Kelly, Bryan, 2021. "Hedging macroeconomic and financial uncertainty and volatility," Journal of Financial Economics, Elsevier, vol. 142(1), pages 23-45.
    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. Ma, Richie & Serra, Teresa, 2026. "Fast but noisy: Why options react first in agricultural derivatives markets," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404352, Agricultural and Applied Economics Association.

    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. An N. Q. Cao & Michel A. Robe, 2022. "Market uncertainty and sentiment around USDA announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(2), pages 250-275, February.
    2. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    3. repec:ags:aaea22:335789 is not listed on IDEAS
    4. Alan De Genaro & Marco Avellaneda, 2018. "Pricing Interest Rate Derivatives Under Monetary Changes," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(06), pages 1-28, September.
    5. Andres Trujillo-Barrera & Philip Garcia & Mindy L Mallory, 2018. "Short-term price density forecasts in the lean hog futures market," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(1), pages 121-142.
    6. Olga Isengildina Massa & Berna Karali & Scott H. Irwin, 2024. "What do we know about the value and market impact of the US Department of Agriculture reports?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(2), pages 698-736, June.
    7. Bunek, Gabriel D. & Janzen, Joseph P., 2024. "Does public information facilitate price consensus? Characterizing USDA announcement effects using realized volatility," Journal of Commodity Markets, Elsevier, vol. 33(C).
    8. Singh, Mahendra Kumar & Lence, Sergio H., 2023. "Market Stress in Agricultural Markets: Can Alternative Implied Volatility Measures Predict It?," 2023 Annual Meeting, July 23-25, Washington D.C. 335789, Agricultural and Applied Economics Association.
    9. Back, Janis & Prokopczuk, Marcel & Rudolf, Markus, 2013. "Seasonality and the valuation of commodity options," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 273-290.
    10. Dew-Becker, Ian & Giglio, Stefano & Kelly, Bryan, 2021. "Hedging macroeconomic and financial uncertainty and volatility," Journal of Financial Economics, Elsevier, vol. 142(1), pages 23-45.
    11. Shao, Chengwu & Bhar, Ramaprasad & Colwell, David B. & Sheng, Ni & Wei, Xinyang, 2024. "Variance dynamics and term structure of the natural gas market," Energy Economics, Elsevier, vol. 137(C).
    12. Robert F. Engle & Martin Klint Hansen & Asger Lunde, 2012. "And Now, The Rest of the News: Volatility and Firm Specific News Arrival," CREATES Research Papers 2012-56, Department of Economics and Business Economics, Aarhus University.
    13. Raghav Goyal & Michael K. Adjemian, 2023. "Information rigidities in USDA crop production forecasts," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(5), pages 1405-1425, October.
    14. Fan, Zaifeng & Jump, Jeff & Tse, Yiuman & Yu, Linda, 2023. "Volatility in US dairy futures markets," Journal of Commodity Markets, Elsevier, vol. 29(C).
    15. Roberto Andreotti Bodra & Afonso De Campos Pint, 2014. "Modelo De Volatilidade Estocástica Com Saltos Aplicado A Commodities Agrícolas," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 142, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    16. Huang, Wen & Huang, Zhuo & Matei, Marius & Wang, Tianyi, 2012. "Price Volatility Forecast for Agricultural Commodity Futures： The Role of High Frequency Data," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 83-103, December.
    17. 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.
    18. Crego, Julio & Gider, Jasmin, 2024. "The dynamic informativeness of scheduled news," Other publications TiSEM d4538ed2-3aeb-4259-b1f1-2, Tilburg University, School of Economics and Management.
    19. Beber, Alessandro & Brandt, Michael W., 2006. "The effect of macroeconomic news on beliefs and preferences: Evidence from the options market," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1997-2039, November.
    20. Nima Ebrahimi & Craig Pirrong, 2020. "Oil jump risk," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(8), pages 1282-1311, August.
    21. Tore S. Kleppe & Atle Oglend, 2019. "Can limits‐to‐arbitrage from bounded storage improve commodity term‐structure modeling?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(7), pages 865-889, July.

    More about this item

    Statistics

    Access and download statistics

    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:bla:jageco:v:76:y:2025:i:3:p:651-665. 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: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0021-857X .

    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.