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The Effects of Weather Shocks on Crop Prices in Unfettered Markets

The Effects of Weather Shocks on Crop Prices in Unfettered Markets

The United States Prior to the Farm Programs, 1895–1932

Chapter:
(p.99) 4 The Effects of Weather Shocks on Crop Prices in Unfettered Markets
Source:
The Economics of Climate Change
Author(s):
Jonathan F. FoxPrice V. FishbackPaul W. Rhode
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226479903.003.0005

The chapter addresses the cost of climate-related events by examining the impact on agricultural prices. The main goal is to examine the sensitivity of agricultural prices and output to local and nonlocal weather fluctuations over a large span of time in the United States prior to 1932, when markets were relatively unfettered by farm programs. The study assembles a thirty-seven-year panel of state data from the U.S. Department of Agriculture (USDA) for cotton, corn, wheat, and hay and from the National Climatic Data Center for temperature and precipitation, including the Palmer Drought Severity Index (PDSI). Changes in temperature and precipitation, and weather disasters like droughts, floods, heat waves, and blizzards, have direct effects on crop yields and the vitality of farm animals. In this chapter, three great staple crops (cotton, corn, and wheat) as well as hay of the United States are discussed. The results of the analysis show that hay and corn prices were substantially more responsive to local weather shocks than were cotton and wheat prices. The chapter discusses how the reduction of transactions costs through globalization might potentially mitigate the effects of localized weather shocks.

Keywords:   weather shocks, United States, agricultural prices, crop prices, Department of Agriculture, Palmer Drought Severity Index, National Climatic Data Center, globalization

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