Climate variability and the volatility of global maize and soybean prices

Volatility in the price of agricultural commodities is one of the main factors affecting food security. Many studies have analyzed agricultural market instability from different points of view, but the effect of climate oscillations on agricultural price volatility has been little studied. Climate anomalies, and in particular extreme events, can alter agricultural yields and stocks with related effects on prices. This paper presents a Volatility Impulse Response Function (VIRF) from a multivariate GARCH model to investigate the effects of variability in climatic shocks (El Nino/Southern Oscillation - ENSO) on international maize and soybean price volatility from 1960 to 2014. For both commodities, VIRF analysis was conducted splitting the effect of El Nino and La Nina events according to Spring-Summer and Autumn-Winter meteorological seasons. Both events increase expected price volatility of maize, showing the strongest impact during the El Nino phase in Spring-Summer. Soybean price volatility tends to slightly decrease during Autumn-Winter meteorological seasons and to increase during the Spring-Summer period. To minimize the impact of ENSO events on commodity price volatility, various measures can be taken, both political and technical. Financial aspects should also be considered. It is possible that financial agents can use the ENSO index as information for trading activity, creating a new link between this index and volatility in commodity prices.