Extreme Climate Events and Agricultural Commodity Markets

This article investigates the impact of extreme climate events on U.S. agricultural commodity markets, specifically focusing on corn and soybeans. Using event study methods and a comprehensive dataset of 254 extreme climate events for corn as well as 250 extreme climate events for soybeans in top ten corn & soybeans producing states of the USA between 1995 and 2023, we examine how storms, floods, extreme temperatures, and droughts affect the abnormal returns of these commodities. Our findings indicate that 22.04% of climate events significantly impact corn returns and 21.20% of climate events have significant impact on soybeans returns. Notably, extreme temperatures in the case of corn as well as storms in the case of soybeans emerge as the primary culprits, yielding the highest average cumulative abnormal returns. Moreover, we also find that the duration and interaction between GDP & U.S. import dependency significantly impact corn returns, whereas duration affects soybeans cumulative abnormal returns significantly following an extreme climate event. By shedding light on the vulnerability of agricultural markets to climate extremes, our study furnishes valuable insights for policymakers seeking to craft effective climate change adaptation strategies. Our findings underscore the imperative of bolstering agricultural markets’ resilience to these kind of events. Whether through diversifying portfolios, hedging against weather-related risks, or investing in climate-smart agricultural practices, our research provides a robust foundation for making well-informed decisions in navigating the intricate landscape of agricultural markets amidst climate uncertainty.