Valuation in Agricultural Commodity Markets Under a Changing Climate

We explore how a changing climate has impacted the valuation of corn and soybeans grown in the U.S. Midwest. Earlier literature has found that corn and soybean output is sensitive to weather in a nonlinear manner: yields benefit for moderate rain and temperatures, and generally suffer under drought, excessive rain and extreme heat. Using data for 1971-2019 we find that the distribution of regional summer rain has experienced a significant shift towards the right since 1993, with a marked increase in extreme rain episodes. Prior to 1993, dry spells and high temperatures during the summer caused positive crop market returns, in line with a decline in expected yields. More recently, crops have benefited from less extreme dry spells, but extreme precipitation events have been associated with economically significant price increases mediated by reductions in expected output. Our results suggest that weather distributions affected by a changing climate in the U.S. Midwest have already influenced valuation in agricultural commodity markets