Corn pricing affected by global warming, federal mandates not helping, study finds

Researchers out of Purdue and Stanford University have found evidence that small temperature increases over the next two decades could have a surprisingly drastic impact on the volatility of corn prices. And federal biofuel mandates may make things worse.

Geothermal, nuclear, wind, natural gas, soybean biodiesel, corn ethanol – these are just some of the possible ways to thwart greenhouse gas emissions that spur global warming. Yet each technological option is far from perfect, and understandably, harbors its own unique complications.

A recent study published in Nature Climate Change, illustrates such a complication for biofuels derived from corn grown in the United States. Scientists found that, over the next two decades, climate change will probably increase the volatility of corn prices, even more so than expected factors like oil prices and trade policies. Biofuel mandates affect volatility too, and the study also suggests that such federal mandates could actually amplify the effect of rising temperature on the pricing of crop from the US corn belt.

"Frankly, I was surprised that climate had the largest effect of these three influences," said Noah Diffenbaugh of the Stanford Woods Institute for the Environment in a recent Stanford Press Release. "These are substantial changes in price volatility that come from relatively moderate global warming."

This research, funded by the Department of Energy, illuminates two interrelated problems. The first: even if climate change stays within the internationally established "safe" limit of 3.6 degrees Fahrenheit above preindustrial temperatures, a smaller temperature change could still drive up the frequency of severe heatwaves in the US, which would in turn sharply increase the volatility of corn yields, the study suggests.

The second is the constraining effect federal biofuel mandates have on the corn market. This has already been demonstrated before, as the mandates encouraged farmers to plant more corn instead of, for example, soybeans, which historically drove up the price of soy. Without regulation, the corn market, in a particularly temperate season, could allocate more of its crop to biofuel production. Alternatively, in a season of severe heat, it could keep more of its crop for food supplies, thus satisfying demand for the US's dominant crop, and keeping prices down. But under the current federal scheme, the market does not have this flexibility.

Though the study found a surprisingly strong link between climate change and corn price volatility, the researchers noted a relatively small projected impact on overall food prices. They did, however, speculate that if US corn farmers could not increase their crops' heat tolerance by as much as 6 degrees Fahrenheit, much of the US corn belt would have to migrate north, toward the Canadian border, to escape the oppressive heat extremes.

Discussion of how rising temperatures will affect corn prices seems far removed from the national debate over climate policy, which is still focused on whether or not fossil fuels contribute to global warming (almost all climate scientists say that they do). 

Corn-based biofuels have received regulatory encouragement since the Energy Tax Act of 1978, a part of the larger National Energy Act that promoted the shift of US energy to renewable and more efficient sources. Congressional intentions aside, there has been increasing public discussion about the real value of biofuels, both environmentally and economically.

Robert F. Service, writing in Science Magazine in 2009, highlighted the underreported strain on water resources biofuels would impose. Whereas refining oil requires 10 to 40 liters of water to produce one megawatt hour, corn ethanol irrigation requires between two and eight million liters to produce the same supply. In essence, Service writes, "an increased reliance on biofuel trades an oil problem for a water problem."