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

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