The Park Place Economist


Droughts are among the most feared natural disasters. They can affect the lives of many people such as farmers, consumers, or commodity traders. Droughts have taken a year’s work and salary away from farmers, led to higher prices for consumers, and taken the life savings away from some speculators. There has been a recent push in science to better understand the enigma of a drought. However, the research has not yet prevented people from losing a lot of money. The best way to protect people is by understanding how prices react to droughts. Agricultural prices are inherently unstable, primarily due to a combination of inelastic demand for food and production that is subject to the natural vagary of weather. The agricultural product on which this research focuses is soybeans. In particular, I will focus on the November futures contract because it has the most liquidity in the season after the crucial August weather.