The Effects of Weather Shocks on Crop Prices in Unfettered Markets: The United States Prior to the Farm Programs, 1895-1932

Abstract

This paper uses a 37-year panel of state information to identify the effects of weather fluctuations on different types of agricultural commodities. Using information from the United States Department of Agriculture and National Climatic Data Center, we estimate these effects for the staple crops cotton, corn, and wheat. We also analyze the effects for hay, an important crop in local agronomic production. Corn and hay are crops with high transport costs and are used in local productive activities, while cotton and wheat are crops with relatively low transport costs and are primarily exported to non-local markets. The results indicate that for crops sold primarily in international markets, changes in local weather have little effect on farm-gate prices, while changes in weather affecting the aggregate market play an important role. Crops with strong local markets such as corn and hay are much more sensitive to changes in state-level temperature, precipitation, and drought conditions. 2