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The 2019 Government Shutdown Increased Uncertainty in Major Agricultural Commodity Markets

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  • Goya, Raghav
  • Adjemian, Michael K.

Abstract

In January 2019, a government shutdown prevented the U.S. Department of Agriculture from publishing information about the situation and outlook for major U.S. agricultural commodities. We show that, as a result, Chicago Mercantile Exchange Board of Trade markets for corn and soybeans experienced heightened market uncertainty, elevating the cost of hedging. We use historical options data to estimate that the shutdown and publication delay increased the price of hedging, according to two different approaches. If the January 2019 report had been released on time and it had the impact of a normal report at that time of year, ATM corn options would have been 7% ( 6.1% - 8.2%) cheaper, while the price of soybean options would have fallen by 31% (24% - 35%). If the report had instead generated the same IV reduction as the makeup February 2019 publication did, it would have reduced ATM corn and soybean hedging costs by about 22% and 43%, respectively.

Suggested Citation

  • Goya, Raghav & Adjemian, Michael K., 2020. "The 2019 Government Shutdown Increased Uncertainty in Major Agricultural Commodity Markets," 2020 Conference, St. Louis, Missouri 309643, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nccc20:309643
    DOI: 10.22004/ag.econ.309643
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    2. Cao, An N.Q. & Heckelei, Thomas & Ionici, Octavian & Robe, Michel A., 2024. "USDA reports affect the stock market, too," Journal of Commodity Markets, Elsevier, vol. 34(C).
    3. 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).
    4. Goyal, Raghav & Steinbach, Sandro, 2023. "Agricultural commodity markets in the wake of the black sea grain initiative," Economics Letters, Elsevier, vol. 231(C).
    5. 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.
    6. 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.
    7. Andrew M. McKenzie & Michael R. Thomsen & Michael K. Adjemian, 2022. "Characterizing implied volatility functions from agricultural options markets," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(5), pages 1605-1624, October.
    8. Fan, Zaifeng & Jump, Jeff & Tse, Yiuman & Yu, Linda, 2023. "Volatility in US dairy futures markets," Journal of Commodity Markets, Elsevier, vol. 29(C).

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    Keywords

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    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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