Research

Weather shocks are exogenous to the macroeconomy, but their market-wide effects are rarely isolated and studied empirically. Given its exposure and sensitivity to these shocks, the agriculture sector offers a useful source of such variation. We develop a new instrument based on market responses to confidential government crop reports, to measure their impact on the broader economy. Although it holds more sector-level explanatory power, our results indicate that a commodity news shock normalized to the impact of news about an upcoming poor harvest reduces domestic real GDP, industrial production, equity prices, grain exports, global oil production, the price of dry bulk shipping services, and the quantity of food-at-home consumed, while raising core CPI, stock market volatility, the price for U.S. field crop commodities, and food-at-home.

Historically low water levels on the Mississippi River in 2022, caused by severe drought, substantially disrupted crop shipments from inland production regions to export hubs. This resulting congestion increased barge rates and widened regional crop price spread between production areas and the Gulf export hub. Using the relative price of a substitute (RPS) method, we estimate the economic incidence of the 2022 Mississippi River barge backup in U.S. agricultural commodity markets. We find that, on average, the disruption reduced corn and soybean producer prices by $0.54 and $1.02 per bushel, respectively, while raising export hub prices by $0.26 for corn and $0.06 for soybeans. Based on these estimates, we calculate that the event reduced producer revenues by around $134 million for corn and $414 million for soybeans (on bushels sold during the disruption). Simultaneously, it increased procurement costs for export purchasers by $64 million for corn and $26 million for soybeans. We also find that ethanol plants and soybean-crushing facilities served as alternative demand outlets for nearby producers, helping to reduce the effects of the disruption. Proximity to barge-loading terminals or Gulf export ports intensified price impacts on producers while reducing those on purchasers in New Orleans.

The Southeastern region of the United States is a major livestock producer but faces a grain deficit. Analyzing transportation demand for field crops in this region is important for evaluating the factors influencing the livestock industry’s profitability. Among the available transportation modes, rail is one of the most commonly used and cost-efficient options for shipping grain from the Midwest to the Southeast. We estimate rail transportation demand for grains and oilseeds, which are primarily used as animal feed. We find that higher rail rates between a state outside the Southeast and a state within the Southeast reduce grain rail shipments to the region, although the price elasticity of rail demand is inelastic. Furthermore, increased demand for poultry feed in the southeast drives up grain rail shipments to the region.

Recent food price inflation in the United States is comparable to historically sharp increases observed in the 1970s and early-1980s. Policy makers, the media, and ordinary consumers want to know why it happened. Many factors contribute, including supply chain backups and increased production costs brought on by the Covid-19 pandemic and its aftermath, weaker global markets for wheat and fertilizers following Russia's 2022 invasion of Ukraine, and the excess savings buildup funded by historically-large U.S. government stimulus efforts. Using a newly-developed technique to identify the contributions supply and demand shocks make to food price inflation over time, we find that while over 77 percent of food-at-home inflation from the early-1990s up to the pandemic period were due to supply shocks (with the demand side taking up the remaining 23 percent), recent inflation is characterized by demand shocks to a greater degree—accounting for nearly 43 percent of the price rise since January, 2020. We further show that supply-side pressure on food prices is increased by poor agricultural and oil supply news, higher global industrial production, and predicted by Google searches for the term “shortage”, supply chain pressure, a tighter labor market, and higher prices for farm goods. Demand-driven inflation is decreased by bad crop and oil supply news, tighter monetary policy, and industrial production shocks, but increases are predicted by concern over shortages, supply chain pressure, and excess savings—which reached historic levels through pandemic-era fiscal stimulus.