Study links volatile corn prices to climate change

Recent price spikes have raised concern that climate change could increase food insecurity by reducing grain yields in the coming decades, according to the study published this month in the journal Nature Climate Change​.

Commodity price volatility is influenced by a number of factors, such as oil prices, but researchers from Stanford and Purdue universities showed that “US corn price volatility exhibits higher sensitivity to near-term climate change than to energy policy influences or agriculture– energy market integration”.​

Furthermore, if a biofuels mandate is added - such as government-mandated corn sales to ethanol producers - sensitivity to climate change is enhanced by more than 50 per cent.

The authors also go as far to suggest that the US corn belt could be forced to move to the Canadian border to escape devastating heat waves brought on by rising global temperatures.

The study, called “Response of corn markets to climate volatility under alternative energy futures”​, focuses on the US. But Thomas Hertel, a distinguished professor of agricultural economics and study co-author, told FoodNavigator.com that such factors are being echoed across the globe.

He said: “Our climate and yield models are based on historical data.​

“The thing that makes future climate lead to so much more volatility is the great increase in frequency and intensity of extreme heat events projected for the 2020-2040 period.​

 “If other regions experienced similar effects from extreme heat, then the key question would be whether major corn producers experienced such an event in the same year, or whether losses in one region were offset by gains in other regions.”​

Although the study is not projecting future prices, just future price volatility, Hertel added: “I guess we are talking about seeing the kind of run-up from $2/bushel to $4/bushel which we saw in 2007/2008 more frequently.”​

Market impact​

Rabobank Food & Agri commodity analyst, Nick Higgins, told FoodNavigator.com: “Corn yields have enormous impact on global prices.​

“They generally prove the key swing factor in setting price trends for a given season. This is simply because the US plants more corn than anyone else with production in excess of 300 million tonnes annually, and exports 40-60 million tonnes p.a. over the last ten years – roughly half the global exports.​

“Yields tend to be volatile and therefore have large price effects.”​

Euromonitor senior food analyst, Francisco Redruello, also told FoodNavigator.com that an increase in yields in the US affects positively world supply and are a negative force to prices.

However, he highlighted other variables such as supply in other countries, auctions in the cash markets, import prospects, demand or stocks for ethanol, currency fluctuations and oil prices, along with fluctuations in closely related commodities like wheat, soybeans and sugar.

Source: Nature Climate Change 22 April 2012. Doi: 10.1038/NCLIMATE1491

Title: “Response of corn markets to climate volatility under alternative energy futures”

Authors: Noah S. Diffenbaugh, ThomasW. Hertel, Martin Scherer and Monika Verma