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Commodity Prices and Volatility in Response to Anticipated Climate Change

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • A. Nam Tran & David Lobell & Michael J. Roberts & Wolfram Schlenker & Jarrod R. Welch, 2015. "Commodity Prices and Volatility in Response to Anticipated Climate Change," Working Papers 201512, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201512
    as

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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_15-12.pdf
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    References listed on IDEAS

    as
    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.
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    Cited by:

    1. Buschmann, Christoph & Lotze-Campen, Hermann & Rolinski, Susanne & Biewald, Anne, 2015. "A model-based economic assessment of future climate variability impacts on global agricultural markets," 2015 Conference, August 9-14, 2015, Milan, Italy 211377, International Association of Agricultural Economists.

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