UC Davis Agricultural and Resource Economics

Thomas W. Hertel, Purdue University

Response of corn markets to climate volatility and alternative energy futures

Date and Location

Friday, May 11, 2012, 12:00 PM - 1:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Recent price spikes have raised concern that climate change could increase food insecurity by reducing grain yields in the coming decades. However, commodity price volatility is also influenced by other factors, which may either exacerbate or buffer the effects of climate change. Here we show that US corn price volatility exhibits higher sensitivity to near-term climate change than to energy policy influences or agricultureenergy market integration, and that the presence of a biofuels mandate enhances the sensitivity to climate change by more than 50%. The climate change impact is driven primarily by intensification of severe hot conditions in the primary corn-growing region of the US, which causes US corn price volatility to increase sharply in response to global warming projected over the next three decades. Closer integration of agriculture and energy markets moderates the effects of climate change, unless the biofuels mandate becomes binding, in which case corn price volatility is instead exacerbated. However, in spite of the substantial impact on US corn price volatility, we find relatively small impact on food prices. Our findings highlight the critical importance of interactions between energy policies, energy-agriculture linkages, and climate change.

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