Every year it seems to flood in parts of the world, some areas have seen 100 year events in 6 years, which tends to mean people are beginning in the financial world are beginning to see climate change as an event and the need to change calculations on normal agricultural cycles. In an article by David Randall of Reuters, fund managers are now evaluating the long term value of companies that make or sell products ranging from tractors to fertilizer.
The issues is not just the uncertainty of the weather, but how to model how extreme events from droughts to more powerful storms will affect commodity prices and in turn spending by farmers on equipment and seeds.
A report by the US government expects climate change will boost costs for industries which include farming and energy production. The US Department of Agriculture has no way to compensate farmers for crops that were damaged when floods overtook their record high stockpiles of grain. In Nebraska flood costs are estimated at $1 billion.
The ripple affect of higher grains prices affect margins of egg producers such as Cal-Maine Foods. The flood affects companies moving grains down the Mississippi River because sections are out of service.
Michael Underhill, Chief Investment Officer at Capital Innovations is focusing on grain merchants such as ADM or Archer Daniels Midland and John Deere to see if the greater volatility in commodity prices helps or hurts them?
Nobody really knows what will happen, thus there are many theories to be heard as climate changes affect the country.
Linking to dividend paying stocks, one of the things investors like about these stocks is predictability of consistent profits and dividends. Often we have a good idea of what the costs will be, but with climate change different variables are added which increase the unknown. What your company is doing about climate change is a good thing to ask and if they are doing something what are the politicians?
There are more questions than answers, till the next time – to raising questions.