Which Commodities Are Most Impacted by the Climate?

Climate change is having an impact on global commodities, affecting both supply and demand dynamics across various sectors.

As temperatures rise, weather patterns shift, and extreme events have bigger impacts on economies and markets, certain commodities are most vulnerable to these changes.

We’ll look at the major commodities most susceptible to climate impacts, and how changing conditions might affect their production, availability, and markets.

Key Takeaways – Commodities Most Impacted by Climate

• Agricultural commodities like coffee, cocoa, and wheat face more volatile supply risks due to changing temperatures and rainfall patterns, potentially leading to price volatility.
• Energy transition is reshaping demand for fossil fuels, while boosting metals like copper and lithium that are critical for renewable technologies.
• Water scarcity is becoming an important factor affecting production across multiple commodities, from mining to agriculture.
  • Shows how the markets of many commodities are intertwined.
• Extreme weather events risk supply chain disruption, creating short-term price spikes and long-term shifts in production regions.

Agricultural Commodities

Agricultural commodities are among the most directly impacted by climate change, as crop yields and livestock production are highly dependent on weather conditions and environmental factors.

Coffee

Coffee is extremely sensitive to climate conditions, with both Arabica and Robusta varieties facing challenges.

Arabica coffee is primarily grown in countries like Brazil, Colombia, Ethiopia, and Guatemala.

Robusta coffee is mainly cultivated in Vietnam, Brazil, Indonesia, and Uganda.

Supply impacts:

• Rising temperatures and changing rainfall patterns affect suitable growing regions
• Rising temperatures leading to reduced flowering and fruiting periods, which can decrease the quantity and quality of coffee beans
• Increased pest and disease prevalence potentially reducing crop quality and yields
• Frequent extreme weather events such as droughts, floods, and hurricanes can damage coffee crops and reduce overall yields

Demand impacts:

• Potential shifts in consumption patterns due to price increases
• Growing awareness of climate impacts may influence consumer choices

Cocoa

Cocoa production, concentrated in West Africa, is highly vulnerable to climate change.

Supply impacts:

• Reduced suitable growing areas due to temperature increases
• Changes in rainfall patterns affecting crop yields
• Increased susceptibility to pests and diseases

Demand impacts:

• Possible price increases affecting chocolate consumption
• Growing interest in sustainable and climate-resilient cocoa production
• Substitution for other commodities

Wheat

As a staple grain, wheat is important for global food security and highly susceptible to climate impacts.

Wheat is primarily grown in the northern hemisphere, with the main producers being China, India, Russia, Ukraine, the United States, and France.

Supply impacts:

• Shifting growing regions due to temperature changes
• Increased frequency of droughts and heat waves affecting yields
• Changes in pest and disease patterns

Demand impacts:

• Potential for increased demand as alternative crops become less viable
• Price volatility affecting food security and political stability

Rice

Rice is a staple food for over half of the global population.

Rice is versatile, affordable, and can be grown in many climates.

Supply impacts:

• Changes in monsoon patterns affecting water availability
• Increased flooding and salinity in delta regions

Demand impacts:

• Potential shifts in dietary preferences due to availability and price
• Increased demand for climate-resilient rice varieties

Soybeans

Soybeans, used for food, feed, and biofuels, are sensitive to climate conditions.

Supply impacts:

• Changes in temperature affecting yields
• Changes in precipitation
• Shifting suitable growing regions
• Increased pest and disease pressure

Demand impacts:

• Growing demand for plant-based proteins
• Potential changes in livestock feed demand due to climate impacts on meat production

Energy Commodities

Energy commodities are both contributors to climate change and affected by its impacts, creating complex feedback loops in the sector.

Oil

While primarily viewed as a driver of climate change, oil production and demand are also impacted by changing climate conditions.

Supply impacts:

• Extreme weather events affecting offshore drilling and coastal infrastructure
• Thawing permafrost impacting Arctic oil exploration and pipelines

Demand impacts:

• Climate policies driving the transition to renewable energy sources
• Growing incomes in the developed world increasing oil demand
• Increasing adoption of electric vehicles can reduce reliance on gasoline and diesel toward more diverse energy sources
• Expansion of carbon pricing mechanisms makes oil less economically attractive

Natural Gas

Natural gas, often seen as a cleaner transition fuel, faces both opportunities and challenges related to climate change.

Supply impacts:

• Extreme weather events affecting production and distribution infrastructure
• Potential access to new Arctic reserves due to ice melt
• Government policies

Demand impacts:

• Demand for cooling in warmer regions
• Climate policies promoting electrification and renewable energy

Coal

Coal, the most carbon-intensive fossil fuel, is highly vulnerable to climate-related pressures.

Supply impacts:

• Extreme weather events affecting mining operations and transportation
• Coal is impacted by government policies

Demand impacts:

• Strong pressure from climate policies to reduce coal consumption
• Potential for stranded assets as countries transition to cleaner energy sources

Metals and Minerals

The metals and minerals sector is affected by both the physical impacts of climate change and the transition to a low-carbon economy.

Copper

Copper, essential for electrical applications, is critical for the clean energy transition.

Supply impacts:

• Extreme weather events disrupting production and transportation

Demand impacts:

• Increased demand for electrification and renewable energy technologies
• Growing interest in recycling and circular economy approaches
• Infrastructure building

Lithium

Lithium is central to the electrification of transportation, given its value in battery production.

Supply impacts:

• The ability to extract lithium in salt flats
• Potential for new sources in previously inaccessible regions due to ice melt

Demand impacts:

• Rapidly growing demand for electric vehicle batteries
• Expansion of renewable energy storage solutions, including grid-scale battery systems, which require lithium-ion batteries to store and manage energy from solar and wind power
• Increased focus on recycling and alternative battery technologies
• Rising production of portable electronic devices such as smartphones, tablets, and laptops, which use lithium-ion batteries for their compact and efficient energy storage capabilities

Rare Earth Elements

Rare earth elements are critical for many high-tech and clean energy applications, and face complex climate-related challenges.

Supply impacts:

• Extreme weather events affecting mining and processing operations
• Potential for new Arctic sources as ice melts

Demand impacts:

• Growing demand for wind turbines, electric vehicles, and other clean technologies
• Geopolitical tensions around supply chain resilience in the face of climate change
• Consumer electronics such as smartphones, laptops, and advanced household appliances
• Advancements in military technology and defense systems, which increasingly rely on rare earth metals for the development of sophisticated equipment and weapons

Water

While not traditionally considered a commodity, water – and the rights surrounding water – is increasingly viewed as a critical resource affected by climate change.

Supply impacts:

• Changes in precipitation patterns and glacial melt affecting water availability
• Increased evaporation rates in reservoirs and water bodies
• Saltwater intrusion in coastal aquifers due to sea-level rise

Demand impacts:

• Growing agricultural water demand due to higher temperatures and changing crop patterns
• Increased urban water demand for cooling and landscaping in warmer climates
• Potential for water trading and markets to emerge in water-stressed regions

Forestry Products

Forest-based commodities are directly impacted by changing climate conditions and are important in carbon sequestration.

Timber production is also highly vulnerable to long-term climate trends and extreme weather events.

Supply impacts:

• Shifts in suitable growing regions for different tree species
• Increased risk of forest fires, pest outbreaks, and diseases
• Changes in growth rates due to temperature and precipitation shifts

Demand impacts:

• Growing interest in sustainable and climate-resilient forestry practices
• Potential increased demand for wooden buildings as a carbon storage solution

Rubber

Natural rubber production, concentrated in Southeast Asia, faces significant climate-related challenges.

Supply impacts:

• Changes in temperature and rainfall patterns affecting tree growth and latex production
• Increased risk of pests and diseases in traditional growing regions

Demand impacts:

• Potential shifts in transportation patterns affecting tire demand
• Rising demand for medical and health-related products, such as gloves and medical tubing
• Growing interest in synthetic alternatives and recycling
• Expansion of the automotive industry in emerging markets, driving increased demand for tires and other rubber components

Fisheries

Marine and freshwater fisheries are vulnerable to climate change impacts on aquatic ecosystems.

Supply impacts:

• Shifting fish populations due to changes in water temperature and ocean currents
• Ocean acidification affecting shellfish and coral reef ecosystems
• Changes in freshwater availability and quality impacting inland fisheries

Demand impacts:

• Potential shifts in consumer preferences due to availability and sustainability concerns
• Growing interest in aquaculture as a more controlled production method

Conclusion

Climate change is having far-reaching impacts on commodities across various sectors, affecting both supply and demand.

Agricultural commodities are especially vulnerable to changing weather patterns and extreme events, while energy commodities face pressures from both physical climate impacts and the transition to a low-carbon economy.

Metals and minerals critical for clean energy technologies are experiencing growing demand but also face supply challenges related to water scarcity and extreme weather.

As climate concerns continue to unfold, commodity markets will need to adapt to new realities of production, distribution, and consumption.

This may involve developing more resilient supply chains, investing in climate-adaptive technologies and practices, and shifting production to new geographic areas.

Also, the growing focus on sustainability and climate mitigation is likely to drive new innovations in resource efficiency, recycling, and alternative materials across all commodity sectors.

How this plays out has a lot of unknowns.

Understanding these complex interactions between climate and commodities is important for policymakers, traders, and businesses, as it presents challenges and opportunities.

The commodities most impacted by climate change will likely be important in shaping future economic and environmental outcomes.