The 2019 Government Shutdown Increased Uncertainty in Major Agricultural Commodity Markets

Raghav Goyal, Michael K. Adjemian
2020 unpublished
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
more » ... approaches. We estimate that, on the first day of trading following the normally scheduled USDA publication time, the additional commodity market uncertainty caused by the government shutdown increased the price of hedging ATM corn and soybean options by additional 2.95% (95% CI: 2.93% -2.97%) and 1.66% (95% CI: 1.64% -1.68%) , respectively for corn and soybeans, using an approach that assumes a normal January report impact. Using a different counterfactual approach-assuming that the IV reduction following the February 2019 publication would have been experienced in January, we find that the increase in hedging costs due to missing information was actually about 11.4% (95% CI: 10.9% -11.79%) higher for corn and 4.3% (95% CI: 4.1% -4.42%) higher for soybeans.
doi:10.22004/ag.econ.304256 fatcat:v7tk67cezjf4jafd6w5bism654