Research Press Release

The effect of climate volatility on corn markets

Nature Climate Change

April 23, 2012

US corn price volatility exhibits higher sensitivity to near-term climate change than to energy policy influences or agriculture-energy market integration, reports a paper online in Nature Climate Change this week. This work represents one of the first attempts to quantify price effects of climate volatility, in particular in the context of related economic policy.

The proposed likelihood of increased occurrences of severe hot events in response to global greenhouse-gas concentrations poses a risk for field crops. It is unknown, however, whether increasing stress from climate extremes will influence yield volatility as well as yield levels. Noah Diffenbaugh and colleagues set out to explore this using projected twenty-first century changes in temperature and precipitation, and simulated responses of US corn yields to climatic conditions and economic factors. They found that overall climate change increases US corn price volatility from 43% in the historic period (1980-2000) to 177% in the future period (2020-2040). They then include in the analysis different oil price scenarios both in the presence of a biofuel mandate - such as the US ethanol 2011-2012 ‘blend wall’ - and without it. They found that without a biofuel mandate, price volatility response to climate change is smaller - from 31% to 95% (high oil price) and from 32% to 109% (low oil price). However, in the presence of a biofuel mandate, the increase in volatility is much more pronounced - from 37% to 192% (high oil price) and from 41% to 200% (low oil price).

They therefore conclude that the biofuel mandate, which has had a substantial impact on US corn price volatility during the past climates, may have an even greater impact under climate change in the near future. They note, however, that despite the substantial predicted impact on US corn price volatility, they anticipate a relatively small impact on food prices.

The authors caution that their work doesn’t consider the effects of consumer demand or corn producer activity on increased price risk - the latter of whom may moderate their responses to price shocks. However, they conclude that their results indicate that energy markets and associated policy decisions could substantially exacerbate the impacts of climate change - even for the relatively low levels of global warming that are likely to occur over the next decade.


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