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Commodity Prices and Volatility in Response to Anticipated Climate Change

Listed author(s):
  • A. Nam Tran

    (University of Missouri)

  • David Lobell

    (Stanford University)

  • Michael J. Roberts

    (University of Hawaii at Manoa)

  • Wolfram Schlenker

    (Columbia University, National Bureau of Economic Research)

  • Jarrod R. Welch

    (Charles River Associates)

Some predict that climate change will decrease average crop yield and increase yield variability. While the first effect, as well as possible adaption strategies, have been studied extensively, the second is less well understood and the topic of this paper. A unique feature of commodity crops is that they can be stored between periods, thereby allowing storage to smooth production shocks across time. We pair a rational competitive storage model with a statistical analysis linking global production of the four major commodity crops (maize, wheat, rice and soybeans) and climate forecasts from 16 global climate models. The rational storage model predicts a doubling of average storage levels by 2050, slightly raising average prices to cover higher storage losses, but at the same significantly reducing price variability compared to a storage rule that is optimal under past yield distributions. Storage market responses to future yield variability greatly mitigate potential welfare losses of greater production volatility.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_15-12.pdf
File Function: First version, 2015
Download Restriction: no

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201512.

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Date of creation: Sep 2015
Handle: RePEc:hai:wpaper:201512
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  1. Daniel Urban & Michael Roberts & Wolfram Schlenker & David Lobell, 2012. "Projected temperature changes indicate significant increase in interannual variability of U.S. maize yields," Climatic Change, Springer, vol. 112(2), pages 525-533, May.
  2. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, December.
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  9. Michael J. Roberts & Wolfram Schlenker, 2013. "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate," American Economic Review, American Economic Association, vol. 103(6), pages 2265-2295, October.
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  12. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
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  14. Gustafson, Robert L., 1958. "Carryover levels for grains: A method for determining amounts that are optimal under specified conditions," Technical Bulletins 157231, United States Department of Agriculture, Economic Research Service.
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