Climatological risk in agricultural production - Pampas region

Agricultural production is characterized by high exposure to systemic risks arising from climatic variability, price volatility, and market uncertainty. These risks pose significant threats to income stability and food security, especially in regions such as the Argentine Pampas, where agricultural output is central to national exports. This research analyzes climatological risks and their impact on agricultural production between 2019 and 2024, focusing on the severe 2022/23 drought — the most critical in recent decades — and its effects on crop yields and productivity. Through the integration of meteorological data analysis, machine learning models for anomaly detection, and financial modeling, the study explores the application of financial derivatives as tools for agricultural risk management. Using Monte Carlo simulations, the work estimates the value of put options on major crops such as soybeans, corn, wheat, and sunflower, assessing their potential as hedging instruments against adverse price movements. The study further contrasts derivative-based price coverage with traditional insurance mechanisms, examining both Argentina and Portugal to highlight the influence of taxation and government subsidies. Results demonstrate that while financial derivatives offer lower-cost and more flexible hedging alternatives in unsubsidized markets, traditional insurance remains more viable in contexts with strong state support, such as within the European Union. Ultimately, the research concludes that an optimal agricultural risk management framework should integrate both climatological and financial dimensions, combining derivative-based strategies with traditional insurance depending on national policy structures. This hybrid approach enhances financial resilience, allowing producers to mitigate the effects of climate-induced losses while maintaining income stability across volatile production cycles.