Climate Exerts Biggest Influence on Corn Prices
Climate Change to Affect Corn Prices, Study Says
The New York Times, April 22, 2012
Researchers have found that climate change is likely to have far greater influence on the volatility of corn prices over the next three decades than factors that recently have been blamed for price swings — like oil prices, trade policies and government biofuel mandates.
The new study, published in the journal Nature Climate Change, suggests that unless farmers develop more heat-tolerant corn varieties or gradually move corn production from the United States into Canada, frequent heat waves will cause sharp price spikes.
Noah S. Diffenbaugh, a climate scientist at Stanford and an author of the study, said he was surprised by the notable effect of climate change on price volatility for corn, the country’s largest crop. “I really thought climate would be a minor player before we did this analysis,” Professor Diffenbaugh said. “We’re looking at a period over the next three decades or so of moderate global warming, after all.”
Instead, the analysis found that a moderate warming trend was likely to increase the number of days of severe heat in the growing season, thus doubling the volatility of corn yields.
Using economic, climatic and agricultural data, the study found that if climate change stayed within the internationally accepted range of two degrees Celsius over the next 20 years or so, temperature changes would make those heat waves more common.
The researchers then sought to determine how the heat waves would in turn interact with other factors that affect corn prices.
“Energy policy increasingly is important for agriculture,” said Thomas W. Hertel, another author of the study and a professor of agricultural economics at Purdue. Referring to the Environmental Protection Agency and the United States Department of Agriculture, he added: “Ten or 20 years ago, what the E.P.A. and the U.S.D.A. did influenced corn prices. Today, what the Energy Department does also is important.”
The growing use of biofuels, particularly those derived from corn, has already distorted agricultural markets by encouraging farmers to plant corn instead of other crops, thus increasing the price of things like soybeans, which are being produced in lesser quantities.
The study found that federal mandates for biofuel production could amplify the effect of climate change on corn price volatility by hampering the market’s ability to adjust to changes in crop yields.
“If we let the market determine how corn gets allocated,” Dr. Hertel said, “in a year with less severe heat and higher corn yields, more corn can be sold into the energy market for ethanol, while in years of high heat and lower yields, more would end up in the food market.”
The mandates, however, require a certain amount of ethanol for biofuel regardless of yields, he added, “and that will greatly exacerbate the price spikes brought on by climate change.”
Warming set to make corn prices pop
Agence France-Presse, April 23, 2012
PARIS — Climate change will more than quadruple US corn prices in years of peak volatility, environmental scientists said on Sunday.
In a study of the factors that drive up prices in the world's key market for corn, more frequent heatwaves, predicted as a result of global warming, proved far more important than government policies to promote biofuels or than higher oil prices.
"Severe heat is the big hammer," said Noah Diffenbaugh of Stanford University in California.
"Even one or two degrees of global warming is likely to substantially increase heatwaves that lead to low-yield years and more price volatility."
The study found that climate change would increase year-on-year corn price volatility by a factor of 4.1.
The fluctuations were based on a projection for 2020-40 compared to volatility in recent history.
The study, published in Nature Climate Change, used a computer scenario based on warming that ultimately reaches 2.0 degrees Celsius (3.6 degrees Fahrenheit) over pre-industrial times.
Many climate scientists say 2 C (3.6 F), enshrined as a goal by the UN, is an under-estimate.
Current trends of carbon emissions are placing Earth on a track for warming of 3 C (5.4 F) or more, according to some estimates. This figure is the overall global average, so it disguises big regional variations, including seasonal bouts of extreme weather.
Before the results of the study became clear, it was not obvious to Diffenaugh that climate change would be a more important factor than higher oil prices or government policies to promote biofuels.
"Frankly, I was surprised that climate had the largest effect of these three influences. These are substantial changes in price volatility that come from relatively moderate global warming," Diffenaugh noted.
The researchers found that climate's yo-yo effect was accentuated by government support for biofuels.
By growing corn for fuel, this removed a buffer of surplus grain, making the market more inelastic.
"Our results suggest that energy policy decisions are likely to interact with climate change to affect corn price volatility, and that the market effect of a binding biofuel mandate is likely to intensify as the climate warms," said Diffenbaugh.
Unless corn farmers increase their crops' heat tolerance by as much as 3.3 C (6 F), areas of high production will have to move north from the current US corn belt, the researchers said in a press release.
"By the time today's elementary schoolers graduate from colleage, the US corn belt could be forced to move to the Canadian border to escape devastating heat waves brought on by rising global temperatures," it said.
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