Climate change and the US wheat commodity market

We study the impact on the workings of the wheat commodity market of increasing weather variability, one of the direct consequences of climate change. After finding strong evidence of an increase in the variance of weather and harvest for wheat in the US, we develop a structural time series model of the commodity market to investigate the sources and consequences of this increased variability. Exploiting this model, we devise a novel empirical procedure to analyze the impact on price and the potential adjustments of the speculative demand for inventories, as predicted by the rational storage theory. We find that speculation in the physical market for wheat at annual frequency adapted to the greater uncertainty about harvest stabilizing the market price.