Agricultural commodities all rely on the earth to be grown, and are therefore vulnerable to weather events. Weather represents the most direct physical constraint on agricultural productivity. A farmer can optimize fertilizer applications, manage disease, and employ best practices, but ultimately cannot prevent rainfall from being insufficient or excessive, or prevent unseasonable frost from damaging developing crops. This unavoidable physical constraint makes weather the primary source of supply-side volatility in commodity markets, and consequently the primary driver of price volatility for storable agricultural commodities.
How Can the Weather Affect Commodities?
The relationship between weather and prices operates through supply channels. Poor weather reduces yields and total production, tightening supplies and supporting prices. Exceptional weather increases yields and production, expanding supplies and pressuring prices downward. These relationships seem straightforward, but unfold across months and seasons with complex lags, regional variations, and feedback loops that create opportunities for informed observers to anticipate price moves before they fully develop.
Why a change in Supply Increases or Decreases thePrices?
When farmers grow a massive harvest during excellent climatic conditions, there is much more food than people need right away i.e. surplus. Sellers have extra crops that can spoil or cost money to store. Sellers lower their prices to attract buyers and get rid of the extra stock before it goes bad. This pushes market prices down. This also creates another scenario of prices crashing; farmers losing money and facing financial ruin. In order to combat this the government sets a legal “floor price” (Minimum Support Price) before planting. If market prices drop below this line, the government steps in and buys the extra crops directly from farmers at the guaranteed MSP. This stops the price crash.
When there is a shortage of crop commodity buyers compete with each other to buy the limited food available. People are willing to pay more money to get what they need. This pushes market prices up due to which food becomes unaffordable for consumers. So the excess crops bought during surplus years are stored safely in government warehouses. When a shortage happens, the government releases these stored grains into the market to artificially increase supply and cool down inflation.
What’s the scene in India?
India is seeing sharp rises in food prices as extreme weather continues to damage crops and disrupt supply. Tomatoes, onions, and potatoes, which are staples in most households, have become the biggest victims of erratic rainfall, heatwaves, and unseasonal storms.
For example, heavy rains in Himachal Pradesh and Karnataka caused tomato production to fall by nearly 11–13%, pushing wholesale prices in Delhi’s Azadpur Mandi from 18 to as high as 67 per kilo in mid-2023. Similarly, hailstorms in Maharashtra led to a steep fall in onion harvests, while frost in Uttar Pradesh reduced potato output. These disruptions left consumers paying more at the market and farmers struggling with losses.
India’s agriculture is still largely rain-fed, with nearly 65% of cropped land depending on the southwest monsoon. This makes farmers particularly vulnerable to erratic rainfall, cyclones, and heatwaves. With small and marginal farmers producing most of India’s vegetables, the lack of proper storage, transport, and safeguards only worsens the impact of climate shocks.
Vegetables play a major role in India’s inflation story. Although they have a relatively small weight in the Consumer Price Index, sudden price swings in tomatoes, onions, and potatoes can move overall inflation by more than three percentage points.
The Solution
Experts believe that timely and reliable data on crop demand and production can help farmers take better sowing decisions, avoiding both shortages and gluts in the market. Improved storage and cold chain facilities could also reduce post-harvest losses, other solutions include:
1. Weather Monitoring and Forecasting Tools: Modern trading platforms and weather apps provide real-time data, helping traders make quicker, more informed decisions about buying and selling commodities.
2. Diversification: Smart investors spread their risk across multiple commodities (e.g., trading both soybeans and wheat) to avoid heavy losses if one sector is hit hard by bad weather.
3. Seasonal Trading Patterns: Traders analyze historical weather patterns to predict seasonal price movements and position themselves accordingly.
4. Insurance and Hedging: Tools like crop insurance and futures contracts help protect against unexpected weather-related losses, providing a financial safety net.
5. Investment in Climate-Resilient Commodities: Some investors are turning to crops that are more resilient to changing climate conditions, such as sorghum, millet, and drought-tolerant coffee varieties.
Weather represents the fundamental source of agricultural commodity supply volatility, with profound impacts on prices and production decision. By combining weather monitoring, seasonal pattern analysis, and climate index tracking, informed participants can develop superior expectations about future price moves and identify trading opportunities before weather impacts fully propagate through supply chains and into market prices.
Author
Nishant Sidnal is a postgraduate student pursuing a Master’s degree in Genetics and Plant Breeding at Anand Agricultural University, Gujarat. Driven by curiosity and a passion for research, he enjoys exploring new concepts and translating theoretical knowledge into practical applications.
