Change in farmer expectations from information surprises in the corn market

Abstract

Farmers make production decisions despite future output price uncertainty. As a result, farmers' expectation of future output price is an important determinant of investment and the supply of commodities. However, our understanding of the process by which farmers form their expectations is still limited. This study uses direct measures of farmers' financial condition expectations collected through the Purdue University–CME Group Ag Economy Barometer to measure the effect of surprise information on farmers' short- and long-term expectations. The effect is identified using an event study framework previously used to examine the impact of market information on commodity futures markets. Using ordered logistic regressions and variation between professional and United States Department of Agriculture forecasts of corn ending stocks, we demonstrate that farmers' short-term expectations of the financial condition of the broader agricultural economy is altered by surprise information. This study provides a novel step toward understanding the process by which farmers incorporate new information in their price expectations. For example, our findings suggest that farmers perceive short-term corn market information surprises will affect the U.S. agricultural sector to a greater degree than their farm. Additionally, farmers do not perceive that short-term corn market information surprises will carry long-term implications.