The 2019 government shutdown increased uncertainty in major agricultural commodity markets

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 markets for corn and soybeans experienced heightened uncertainty, elevating the cost of managing risk using options. We use historical options data to 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 managing risk using ATM corn and soybean options by 2.95% and 1.66%, respectively, using an approach that assumes a normal January report impact. Using a different counterfactual approach -- assuming that the observed, abnormally large implied volatility reduction following the February 2019 publication would have been experienced in January -- we find that the increase in risk management costs due to missing information was actually about 11.5% for corn and 4.4% for soybeans.