Agricultural policy uncertainty and its impact on commodity markets

Abstract

We construct an agricultural policy uncertainty (APU) index from leading national and local newspapers in major agricultural states in the United States from January 1999 to September 2021. Our analysis shows that economic policy uncertainty Granger causes APU linearly in the short run, but the relationship is nonlinear and bidirectional in the long run. When economic policy uncertainty is considered, APU significantly reduces hedgers' net short positions and speculators' net long positions (except for corn hedgers) in the corn and soybean markets. APU also has a significant positive impact on the log returns of corn and soybean futures prices, consistent with the theory of storage where commodity returns and volatility are positively correlated.