1. Weekend Reading: In my last weekend thread I highlighted a 1990 AJAE article on the reaction of the live hog futures market to the release of quarterly Hogs and Pigs Reports. An oldie but goodie. Going to roll the clock forward almost 30 years to an update of that work.
2. Two points before getting to the new paper. First, I actually kept up the series on pre-release trade guestimates for HPRs for the last 30 years. Second, incredibly fortunate to team up with Berna Karali at Georgia and Olga Isengildina-Massa at VPI for the new work.
3. Now a methodological point. My 1990 AJAE article looked at "market surprises" as a measure of informational impact of HPR. Difference between pre-release guestimates and USDA #. Since that time, much of the literature has adopted a simpler approach.
4. The simpler approach is to look at price volatility on USDA report days vs non-USDA report days. Ratio of two volatilities is a measure of USDA report impact. Makes a lot of sense and does not require data on market expectations. Used this approach in several studies myself.
5. Berna, Olga, and I applied the price volatility test to HPRs and COFs (Cattle on Feed Reports) in a 2016 paper and were very "surprised" to find very little evidence of price impact for the reports. (pun intended)
6. Had to figure out what was behind this. The result was a2019 JARE article. I still think it is a very good piece of detective work and brings together two strands of the literature: impact of USDA reports and structural change in livestock markets. ageconsearch.umn.edu/record/292333/…
7. This table shows our price volatility tests for HPR and COF report release days vs. other non-report days in live/lean hogs and live cattle futures. Note that price impact according to this measure disappears for cattle after 2000 and is much smaller for hogs. Hmmm. 
8. Does this mean that USDA livestock inventory reports no longer contain valuable information? Not according to our market surprise-based tests, shown here for rolling 10-year windows. At least one component of reports highly significant post 2000. What gives?
9. This is where structural change in the livestock sector comes in. Hog and cattle inventories shown in the these charts. Notice how much less variable both inventories became after the late 90s. Makes sense in much more vertically integrated industries.
10. Now here are charts of the market surprises going back into the 1970s. Dramatic reduction in size of market surprises for both HPRs starting in, you guessed it, the late 1990s. Similar for COFs.
11. So here is the story. Vertical integration in hog and cattle industries made inventories much easier to predict. This reduced the size of market surprises for USDA HPRs and COFs, which in turn reduced the size of price reactions to the reports in livestock futures.
12. While the size of price reactions is now smaller in an absolute sense, they are still statistically significant relative to size of market surprises. Still no way to get around the fact that the absolute impact of HPRs and COFs is nowhere near what it was 40 years ago.
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