Exogenous Risk, Hedging Pressure, and Risk Premia in Agricultural Commodity Markets

Public information not only reduces fundamental uncertainty in financial markets; it also coordinates dispersed private beliefs around a common reference point. We study this coordinating role in the U.S. corn futures market by developing a Bayesian learning framework in which traders form posterior price expectations as a weighted average of private priors and the public signal from USDA crop reports. Using a novel inverse quantile mapping procedure to extract price expectations from agent-level supply forecasts, we estimate that market participants place an average weight of 15 percent on USDA reports relative to their private priors. This anchoring weight is highly dynamic. Traders rely less on the public signal when USDA forecasts become noisier, and substantially more when private-analyst dispersion rises. Using Local Projections with Instrumental Variables (LP-IV), we decompose the effect of each source of uncertainty on realized volatility, and uncover a striking asymmetry. Public uncertainty raises volatility primarily by weakening the anchor. Private uncertainty, by contrast, does not raise total volatility. Its destabilizing direct effect is fully offset by the stabilizing indirect effect of stronger anchoring. The market’s apparent resilience to private uncertainty is therefore a product of public information itself. These findings reveal a trade-off facing public agencies between maximizing forecast accuracy and preserving market stability, and show that the value of credible public statistics rises with the disorder of private information environments.