ecent studies on spot (stock, bonds, commodities) as well as on futures R markets have stirred academic interest on the effect of the economic impact of public announcements on prices. Scheduled releases of economic information (earnings, dividends, inflation, money supply, CPI, etc.) as well as non-scheduled announcements (tender offers, investment proposals, new patents and discoveries, etc.), were analyzed to determine whether prices reflected this information before it was released. These semi-strong market efficiency tests conclude that prices reflect all publicly available information and only unanticipated changes in economic data can surprise the market.
This study is based on the notion that commodity markets are information driven mechanisms which determine equilibrium prices. If markets are active, the information is quickly disseminated among market participants who, upon trading, determine a fair price. It is also hypothesized that prices can reflect information which is not publicly announced by a governmental agency but yet successfully forecasted by private agents. The investigation of these hypotheses should shed light on three issues: (1). the existence of the semi-strong market efficiency and the speed of information dissemination with respect to the USDA crop forecasts, (2). the effectiveness of a governmental agency in providing the market with useful and reliable forecasts, and (3). the importance of private forecasting companies in predating official estimates and help traders form a direction of price changes, if not an accurate prediction. This article examines the first two issues explicitly and finds implications about the third.
We chose five agricultural commodities traded at the Chicago Board of Trade (corn, wheat, soybeans, soybean meal, and soybean oil) to investigate the cash price behavior upon the (USDA) U.S. Department of Agriculture, crop size forecasts over 19 years (1966)(1967)(1968)(1969)(1970)(1971)(1972)(1973)(1974)(1975)(1976)(1977)(1978)(1979)(1980)(1981)(1982)(1983)(1984).
The USDA crop announcements are made available on a monthly basis during the summer and fall months. Due to weather conditions during the critical stages of the crops the final size is very uncertain. The unique way in which USDA forecasts *This article has benefited from helpful discussions with Harry Grammatikos and Joel Arata. Any remaining errors are mine. The author thanks Panos Chrysanthis for the graph preparation.