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The Impact of Measurement Error on Estimates of the Price Reaction to USDA Crop Reports

  • Aulerich, Nicole M.
  • Irwin, Scott H.
  • Nelson, Carl H.

This paper investigates the impact of USDA crop production reports in corn and soybean futures markets. The analysis is based on all corn and soybean production reports released over 1970-2006. The empirical analysis compares the typical OLS event study approach to the new Identification by Censoring (ITC) technique. Corn and soybean production reports are analyzed both separately and together for impact in corn and soybean futures prices. ITC proves to be the more useful method because it avoids the pitfalls of errors in variables that cause downward bias in OLS coefficients. Price reaction coefficients estimated via ITC are one to four times larger than OLS estimates for a one price and one event analysis. In the two price, two event case, ITC estimates are one to six times larger. Market reaction to the unanticipated information in USDA forecasts is substantially larger than estimated in previous studies.

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File URL: http://purl.umn.edu/37579
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Paper provided by NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2007 Conference, April 16-17, 2007, Chicago, Illinois with number 37579.

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Date of creation: Apr 2007
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Handle: RePEc:ags:nccsci:37579
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  1. Falk, Barry L. & Orazem, Peter, 1989. "Measuring Market Responses to Error-Ridden Government Announcements," Staff General Research Papers 11096, Iowa State University, Department of Economics.
  2. 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.
  3. Good, Darrel L. & Irwin, Scott H., 2006. "Understanding USDA Corn and Soybean Production Forecasts: Methods, Performance and Market Impacts over 1970 - 2005," AgMAS Project Research Reports 37514, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
  4. Roberto Rigobon & Brian Sack, 2008. "Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 335-370 National Bureau of Economic Research, Inc.
  5. Orazem, Peter & Baur, Robert F., 1994. "The Rationality and Price Effects of Usda Forecasts of Oranges," Staff General Research Papers 11133, Iowa State University, Department of Economics.
  6. 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.
  7. Carter, Colin A., 1999. "Commodity futures markets: a survey," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(2).
  8. 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(01), April.
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