We investigate the impacts of the El Niño-Southern Oscillation (ENSO) on global food security by using information embedded in financial derivatives. Using a state-of-the-art general circulation model (GCM) climate forecasting system that generates observations on the phase and magnitude of ENSO, we create novel indices that track its uncertainty throughout time. Together with the option implied volatilities of core food inputs (wheat, maize, rice, and soybean), we model the time-varying volatility spillover from ENSO to each commodity, capturing the direction and intensity of risk transference. Simulating Gaussian and non-Gaussian impulse responses that mimic an increase in climate variability show a persistent impact on the price uncertainty of the commodities lasting up to three months. We also show that shocks are contingent on the phase of ENSO, with warmer conditions in the Eastern Pacific (i.e., the El Niño phase) increasing risk transference for soybean and rice. In contrast, the La Niña phase has a material influence on the uncertainty of wheat and maize. In all, we reveal a volatility transmission channel of climate variability that affects financial markets, suggesting valuable inferences about the impact of climate shocks can be derived from the rich information embedded in commodity-linked derivatives.
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