Capturing Volatility from the USDA Acreage Report with New Crop Weekly Options
The annual USDA Acreage report
Acreage, which is released annually on the last business day of June, is one of the most impactful reports released by the USDA. While Prospective Plantings contains intended acreage for principal crops for the upcoming crop year, Acreage reports completed planting, serving as an indicator of how well the reality of the crop year meets expectations at its outset. The report is a particularly notable mover of Corn futures (Globex code: ZC) and Soybean futures (Globex code: ZS) prices.
Demonstrative of the report’s potential, the June 30, 2023, Acreage report rocked markets when the USDA reported national soybeans acreage of 83.5 million acres, a number significantly below expectation. November 2023 Soybean futures jumped 77^4 cents that day, 6.12% from the day’s open to the daily settlement price. June 30, 2023 was also the most traded day in terms of total volume for the instrument.
Figure 1: November 2023 Soybean futures
Although Acreage has the potential to move both old and new crop instruments, the fundamental nature of the report differently impacts instruments of different crop years. Because Acreage reports the planted acreage for the new crop year, it carries a potential primary impact on new crop instruments. While old crop instruments including July, August and September Soybean futures moved very significantly on the report, November Soybean futures had the largest one-day move.
Upside vs. downside risk
Options skew – the difference in implied volatility between upside calls and downside puts – can suggest a window into sentiment of directional risk. Skew suggests demand for calls or puts, possibly indicating either bullishness or bearishness.
Currently, December Corn options exhibit higher 25-delta risk reversal than at the same days to expiration in 2023, though the risk reversal at 184 DTE in Corn futures is below the 10-year average (below, in Table 1). Risk reversal is one command measure of skew, which is the difference in implied volatility between calls and puts with the same absolute value of delta or same moneyness. A risk reversal demonstrates the cost of downside versus upside protection. The 25-delta risk reversal is calculated by finding both the 25-delta call and put and then taking the difference between the implied volatilities of the two.
Figure 2: Corn options 25 delta risk reversal skew (C - P)
