A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
A look at the news

The “Weather Market”: when speculators play with the weather

02 May 2011

The “Weather Market” is an English expression which recently became popular following the drought in Russia during the summer of 2010. It defines the markets on which variable climate conditions play a key role, and therefore, where financial players make their investment decisions based on weather forecasts and climatic hazards.

Today, Europe and the United States have concerns. Drought and water shortages affecting the north and west of Europe are creating fears for the next cereal crop, and in the United States, as several States are experiencing heavy rain, U.S. wheat has risen to its highest level in seven weeks. Because of these weather conditions, yield forecasts have been downgraded: many anticipate a new level of depletion in global stocks.

If information on weather conditions has always been a crucial factor in decision making with various market players, from farmers, cooperatives, investors, and even states, the question that arises now is : what impact will the treatment of such information by the relevant players have on the new price levels seen in a context of increasing financialization in agricultural markets?

Indeed, the recent period demonstrates that the magnitude of volatility is no longer simply due to natural imbalances on physical markets, but to the positions taken by players in response to this information. When in 2010, Russian President Dmitry Medvedev announced the introduction of an embargo on the sale of grain after the wave of drought that destroyed part of the national crop, markets immediately started to panic and prices rose by almost 30%, and this without the fundamentals in terms of physical supply and demand being modified.

Whether some like it or not, agricultural markets are not subject to the rule of thumb seen on physical markets, where price volatility on agricultural commodity prices fluctuate around an upward trend, and are only due to the occurrence of natural hazards and climate. Forecasts would probably be simpler but the facts are there to remind us that agricultural markets have become complex markets for anticipation whose structural price volatility is the result of a combination of unrelated various risks.

It is therefore essential to improve the flow of information on these markets and set up adequate regulatory mechanisms to prevent further excessive price fluctuations whose effect could be devastating.
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Paris, 26 April 2019