Navigating climatic risks: insights from the wheat market and strategies for financial hedging

Giulia Nadalini and Silvia Romagnoli

Chapter 13 in Handbook of Climate Change and Financial Markets, 2026, pp 238-263 from Edward Elgar Publishing

Abstract: The overarching goal of this chapter is to conduct a comprehensive analysis of the intricate interplay between climatic risks and agricultural commodity prices. Specifically, we focus our attention on understanding the dynamic relationship between agriculture and weather patterns, with a keen eye on one of the world's most vital agricultural commodities: wheat. As a staple cereal crop cultivated and traded across the globe, wheat serves as an exemplary subject for our investigation. To achieve this, we embark on a meticulous exploration of the wheat market and its cultivation cycle. Through this exploration, our aim is to identify and elucidate the key weather variables that wield the most substantial influence on wheat production. Additionally, we undertake a detailed examination of the daily correlations between these identified weather variables and fluctuations in wheat prices. Drawing upon both our empirical findings and the wealth of insights gleaned from the extensive literature on the inseparable relationship between agriculture and climate change, we endeavour to shed light on potential strategies for mitigating these risks. In particular, we turn our attention to the realm of financial engineering, exploring how innovative financial instruments and hedging techniques can offer avenues for managing the inherent volatility and uncertainty arising from climatic risks in agricultural markets. Through this multifaceted analysis, we aim to provide valuable insights and practical recommendations for stakeholders navigating the complex intersection of agriculture, climate, and finance.

Keywords: Quanto option; Agricultural commodities; Climatic risks; Weather derivatives; Wheat (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035340415
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