Inventory surprises and futures calendar spreads in grain markets

Abstract

Abstract This article examines whether corn and soybean calendar spreads respond to unexpected changes in USDA ending stocks forecasts reported in WASDE. Consistent with the theory of storage, we find that positive inventory surprises move adjusted calendar spreads toward full financial carry (i.e., toward zero), whereas negative surprises make them more negative. Our results demonstrate that inventory news matters more when convenience yield is relatively high. In addition, we find that larger WASDE inventory surprises lead to greater volatility in calendar spreads. We also show that surprises generally move futures prices across the forward curve in the same direction, but nearby contracts respond more strongly than deferred contracts. Overall, our results confirm the value of WASDE reports and futures markets in efficiently allocating grain over time.