Agricultural price booms are better explained by common factors than by market-specific factors such as supply shocks. A capital asset pricing model-type model shows why one should expect this and Granger causality analysis establishes the role of demand growth, monetary expansion and exchange rate movements in explaining price movements over the period since 1971. The demand for grains and oilseeds as biofuel feedstocks has been cited as the main cause of the price rise, but there is little direct evidence for this contention. Instead, index-based investment in agricultural futures markets is seen as the major channel through which macroeconomic and monetary factors generated the 2007–2008 food price rises.

How to Understand High Food Prices

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1574-0862.2008.00345.x

Anatomy of a crisis: the causes and consequences of surging food prices

Extreme heat stress during the crop reproductive period can be critical for crop productivity. Projected changes in the frequency and severity of extreme climatic events are expected to negatively impact crop yields and global food production. This study applies the global crop model PEGASUS to quantify, for the first time at the global scale, impacts of extreme heat stress on maize, spring wheat and soybean yields resulting from 72 climate change scenarios for the 21st century. Our results project maize to face progressively worse impacts under a range of RCPs but spring wheat and soybean to improve globally through to the 2080s due to CO2 fertilization effects, even though parts of the tropic and sub-tropic regions could face substantial yield declines. We find extreme heat stress at anthesis (HSA) by the 2080s (relative to the 1980s) under RCP 8.5, taking into account CO2 fertilization effects, could double global losses of maize yield (ΔY = −12.8 ± 6.7% versus − 7.0 ± 5.3% without HSA), reduce projected gains in spring wheat yield by half (ΔY = 34.3 ± 13.5% versus 72.0 ± 10.9% without HSA) and in soybean yield by a quarter (ΔY = 15.3 ± 26.5% versus 20.4 ± 22.1% without HSA). The range reflects uncertainty due to differences between climate model scenarios; soybean exhibits both positive and negative impacts, maize is generally negative and spring wheat generally positive. Furthermore, when assuming CO2 fertilization effects to be negligible, we observe drastic climate mitigation policy as in RCP 2.6 could avoid more than 80% of the global average yield losses otherwise expected by the 2080s under RCP 8.5. We show large disparities in climate impacts across regions and find extreme heat stress adversely affects major producing regions and lower income countries.

https://iopscience.iop.org/article/10.1088/1748-9326/9/3/034011/pdf

Global crop yield response to extreme heat stress under multiple climate change futures

The high food prices experienced over recent years have led to the widespread view that food price volatility has increased. However, volatility has generally been lower over the two most recent decades than previously. Variability over the most recent period has been high but, with the important exception of rice, not out of line with historical experience. There is weak evidence that grains price volatility more generally may be increasing but it is too early to say.

/pdf/food-price-volatility-2xkl7ulz67.pdf

Food price volatility

Recent volatility of prices of major grains has generated a wide array of analyses and policy prescriptions that reveal the inability of economists to approach a consensus on the nature of the phenomenon and its implications for policy. This review of market events and their economic interpretations finds that recent price spikes are not as unusual as many discussions imply. Further, the balance between consumption, available supply, and stocks seems to be as relevant for our understanding of these markets as it was decades ago. Though there is much to be learned about commodity markets, the tools at hand are capable of explaining the main forces at work, and of giving good guidance to policymakers confronted with a bewildering variety of expensive policy prescriptions.

/pdf/the-economics-of-grain-price-volatility-3b41wy8pgo.pdf

The Economics of Grain Price Volatility

Preface : The temperature of the rhetoric in the food-versus-fuel debate has been rising right along with the prices of corn and oil. Farm Foundation is not about heat or fueling fires. Our mission is to be a catalyst for sound public policy by providing objective information to foster deeper understanding of the complex issues before the food system today. We commissioned this paper to provide a comprehensive, objective assessment of the forces driving food prices. In recent months, much has been written in the academic and popular press about commodity prices, biofuels and food prices—often with varying perspectives and conclusions. Farm Foundation asked Wallace Tyner, Philip Abbot and Christopher Hurt, all of Purdue University, to review the literature and provide a comprehensive assessment of the forces driving food prices today. The three economists reviewed more than two dozen reports and studies, summarizing them in light of their own examination of the facts. As is true of many issues in the food system, the full story behind rapid increases in food prices is not a simple one. Today’s food price levels are the result of complex interactions among multiple factors—including crude oil prices, exchange rates, growing demand for food and slowing growth in agricultural productivity—as well as the agricultural, energy and trade policy choices made by nations of the world. But one simple fact stands out: economic growth and rising human aspirations are putting ever greater pressure on the global resource base. The difficult challenge for public and private leaders is to identify policy choices that help the world deal with the very real problems created by today’s rising food prices without jeopardizing aspirations for the future. It is the intent of Farm Foundation that the objective information provided in this report will help all stakeholders meet the challenge to address one of the most critical public policy issues facing the world today.

What's Driving Food Prices?

Preface ree years ago Farm Foundation, NFP asked Purdue University economists Wallace Tyner, Philip Abbot and Christopher Hurt to review the literature and provide a comprehensive assessment of the major factors driving commodity and food prices. Our objective was to cool the heated rhetoric in the food-versus-fuel debate, which had been rising right along with the prices of corn and oil. Today, although the rhetoric seems to be lower, prices of oil and commodities, including corn, soybeans and wheat, have again approached the levels of 2008. In addition, policy makers today are focused on a national debate over fiscal policy—a debate that encompasses the future direction of food, agricultural and energy policies. Farm Foundation commissioned the current paper to provide a comprehensive, objective assessment of the forces driving commodity and food prices. A major question was whether the forces at work today are the same as or different from those of 2008. Our goal is to provide public and private decision makers with an objective assessment of the forces driving commodity prices, as well as offer some insights into the impacts on policy options. Now, as in 2008, the full story behind rapid increases in commodity prices is not a simple one. Many of the factors driving prices remain the same but play out in different ways—including biofuel demands, exchange rates and weather. As concluded in 2008, one simple fact stands out: economic growth and rising human aspirations are putting ever greater pressure on the global resource base. As with the earlier work, this report does not attempt to attribute the proportion of the price increases among the different drivers. Rather the focus is on understanding the nature and interactions of the respective factors. In an environment of higher and more volatile commodity and food prices, as well as budget constraints, policy makers and society are faced with difficult choices about fundamental elements of food, agricultural and energy policies. We hope that the information provided in this report will strengthen the ability of all stakeholders to address some of the most critical public policy issues facing the world today. We authors are agricultural economists on the faculty at Purdue University. Abbott works in international trade and macro factors. Hurt works in analysis of commodity markets. Tyner is an energy and policy economist most recently specializing in biofuels policies. We each brought a unique perspective to the table, and have learned …

What’s Driving Food Prices in 2011?

In the spring and early summer of 2008, the temperature of the rhetoric in the food-versus-fuel debate was skyrocketing right along with the prices of corn, soybeans and crude oil. Farm Foundation is not about heat or fueling fires. Our mission is to be a catalyst for sound public policy by providing objective information to foster deeper understanding of the complex issues before the food system today. We commissioned Purdue University economists Wallace Tyner, Philip Abbott and Christopher Hurt to provide a comprehensive, objective assessment of the forces driving food prices. Released in July 2008, What’s Driving Food Prices? identified three major drivers of prices—depreciation of the U.S. dollar, changes in production and consumption, and growth in biofuels production. The three economists also reviewed more than two dozen reports and studies in the academic and popular press about commodity prices, biofuels and food prices, summarizing them in light of their own examination of the facts. Today, just eight months later, the landscape is remarkably different. The 2008/2009 crop production was higher than forecast, quieting talk of inadequate supplies. Significant declines have occurred in crude oil, grain and oilseed crop prices. Biofuel production has slowed. The value of the U.S. dollar has appreciated. A global financial crisis and recession now dominate the news. Given this remarkable reversal of conditions, we asked Tyner, Abbott and Hurt to reexamine the drivers of food prices. Their analysis indicates that now, as eight months ago, the answers are not simple. While the level of food prices has dropped, the forces driving those prices remain the same today as in July 2008, as does the need to understand how those forces work and interact. As did the July 2008 report, this update reinforces the fact that food prices are influenced by diverse and multiple factors generated by complex global economic issues. It is the intent of Farm Foundation that the objective information provided in this report will help public and private leaders better understand the functions of these driving forces as they make business and public policy decisions for the future.

What's Driving Food Prices? March 2009 Update

Industrialization in the Pork Industry

Several studies have attempted, with varying degrees of success, to quantify price risk variables for crops at various levels of aggregation (Just, Behrman, Traill, and Lin). Price risk in particular market situations is an empirical issue and difficult to predict ex ante. Several factors suggest the potential for a risk response in sow farrowings. The limited ability of hog futures market prices to forecast subsequent cash prices (Leuthold and Hartman, Martin and Garcia) indicates that the level of uncertainty about future price is high. This, coupled with livestock producers reticence to use the futures market as a hedging mechanism (Leuthold) suggests that producers' exposure to existing price risk may be prevalent. This analysis quantitatively examines the importance of input and output price risk on aggregate sow farrowings. First, the price risk model is reviewed briefly. Then, a conventional adaptive expectations model is used to develop price and risk variables. Alternative definitions of risk are assessed. Finally, futures prices are used to generate expected price and risk variables.

https://www.jstor.org/stable/info/1240651

Chris Hurt

Papers

What's Driving Food Prices?

What’s Driving Food Prices in 2011?

What's Driving Food Prices? March 2009 Update

Industrialization in the Pork Industry

The Impact of Price Risk on Sow Farrowings, 1967–78