Extreme Dry Spells and Larger Storms in the U.S. Midwest Raise Crop Prices

Abstract

The U.S. Midwest produces about a third of global corn and soybeans, two of the most important crops for humanity. Earlier literature has found that corn and soybean output is sensitive to weather in a nonlinear manner: yields benefit from moderate rain and temperatures, and generally suffer under drought, excessive rain and extreme heat. In this study we explore how changing weather patterns and extreme events in the U.S. Midwest have impacted the valuation of corn and soybeans. 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 during the summer led to strongly higher crop prices and were exacerbated by extreme heat. Since 1993, extreme dry spells and larger storms have been both associated with price increases in the 10% range. We also find that the nonlinear price response to weather is compatible with the impact of weather on terminal yields. Our results suggest that changing weather patterns and extreme events in the U.S. Midwest have a strong influence in the valuation of corn and soybeans.