“Climate Change Seen Posing Risk to Food Supplies” – New York Times, 1 November 2013

According to a UN report by the Intergovernmental Panel on Climate Change, the effects of climate change are now expected to reach the global food supply: during each decade, our supply is anticipated to decline by 2%, while food prices increase. This comes at a time when food demand is also expected to skyrocket — 14% each decade.

The panel’s 2013 report is far harsher than its previous report, from 2007; the 2013 report includes recent research on how vulnerable crops are to heat waves and droughts, as well as more warnings of the necessity to lower global GHG emissions. However, the panel found that carbon dioxide emissions have the added affect of boosting food production — the gas apparently performs as a type of plant fertilizer.

The panel found that the effects of climate change and global warming will hit tropical regions’ food supplies the worst, due to greater poverty rates and tremendous heat waves. Not being able to satisfy global food demand might force us to cultivate more farm land for production purposes — i.e., deforestation, which would speed up the effects of climate change by releasing significant quantities of carbon dioxide into the atmosphere.

Sweeping climate policy reforms, like the Obama Administration’s, though helpful, come a little late: the report finds that such actions might not be drastic enough to slow down the effects of climate change; advantages from steps, like curbing emissions, will generally be seen late in the 21st century.

November 20, 2013

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“Biofuel producers diversify away from crops” – St. Louis Business Journal, 14 June 2013

There are three key industries that rely on corn: biofuel/ethanol, pork and fructose corn syrup. However, erratic corn prices are forcing biofuel and ethanol producers to diversify, and most are moving to lower-cost non-food and food feedstocks, such as waste vegetable oil, tallow, algae, waste sugar, corn cobs, wood waste and swtichgrass.

This means that some production plants have underwent modifications in order to use these other feedstocks, and while that can be pricey, it has certainly paid off. The biofuel manufacturer FutureFuel has seen considerable gains since introducing alternative feedstocks: in 2011, the company’s biofuel revenue was $141.6 million; in 2012, the company increased this revenue by 35% to $191.4 million.

Last year’s drought yielded a low corn harvest and was detrimental to ethanol manufacturers, who had to downsize production for the first time in 16 years. This year’s harvest is looking to be better, but ethanol and biofuel companies might opt for cheaper feedstocks instead.

This shift is bound to have a significant impact on the corn industry, and we are likely to see an supply of corn that the pork and fructose corn syrup industries can’t cover. We will probably also see noticeably decreased prices, which will, in turn, put more pressure on corn farmers to increase prices to make up for last year and future losses.

This a a true example of classic economic theory at play, where “supply and demand”, along with substitution in competing markets, affects commodity prices in a somewhat unpredictable manner.

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

June 18, 2013

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“Traders Sow Bets on Higher Wheat” – Wall Street Journal, 15 January 2013

Like our previous post on rising milk prices, wheat prices, too, are on the rise; and this past summer’s drought is to blame.

Pricing on corn and soybean skyrocketed to new records after this past summer, as the drought devastated massive amounts of both crops. Due to continued low rain- and snow-fall, many traders are betting that major increases on wheat prices will, again, occur during the next wheat harvest.

Last week, the NOAA confirmed that 2012 was indeed the hottest year on record. Kansas, the largest producer of wheat, and the southern area of the US called The Great Plains, are still plagued with drought conditions; since summer, soil moisture has greatly diminished, which is a necessity for healthy wheat-crop growth. And recent weather forecasts are not raising hopes.

Wheat prices have increased by 5.1% since the USDA reported that quantities of wheat are less than expected. Traders trust that wheat prices have reached the bottom of the well; however, a continued poor harvest for the US, the largest manufacturer of wheat in the world, could further constrict supplies. A recent survey by the USDA shows that 26% of this year’s wheat crops are “poor” or “very poor”, suggesting that much cannot be reaped from these crops.

The drought has been disheartening for farmers, causing some to plant less wheat this past fall. Additionally, due to low supplies of corn, a main ingredient in animal feed, farmers are going to use more wheat in their animal feed this year. Both of these issues could very well cause a further tightening on an already dwindling wheat supply.

Russia and Australia, two main producers of wheat, have also been undergoing harsh droughts and yielding damaged crops. If record-high springtime temperatures continue, then rain will be a large necessity come March. Major wheat-producing countries are in dire need of some favorable weather this harvest season.

Nobody can control weather and drought, but we can influence factors which affect  weather and climate, especially if they are effected by human actions. It takes a long time to influence climate; therefore, we need to start now on meaningful climate change policy initiatives. It’s not about ideology, it’s about dollars, cents and wheat prices.

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

January 17, 2013

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NOAA: 2012 Hottest Year On Record For Lower 48 States

The National Oceanic and Atmospheric Administration (NOAA) confirms that 2012 was the hottest year on record for the lower 48 states. Not only did the continental US experience an extremely severe drought, but it was also plagued by wildfires, hurricanes and storms. Tornado activity, however, was below average.

(source)

According to the NOAA and the National Climatic Data Center (NCDC), 2012′s average temperature was 55.3 degrees Fahrenheit, 3.2 degrees above the 20th century’s average and 1.5 degrees above the average in 2011. This year’s average temperature was only one degree above the average temperature of 1998. Though a one degree increase seems marginal, it is actually the opposite: annual temperature records are usually only broken by tenths of a degree. Average temperatures in earlier years had remained within a range of 4 degrees; thus, making 2012′s jump fairly grim.

The year 2012 contained the fourth-warmest winter, warmest spring, second-warmest summer and above-average temperatures in fall. This past July, 61% of the country experienced drought conditions, and was the hottest month for the contiguous 48 US with an average temperature of 3.6°F, exceeding typical July temperatures.

The drought spanning 2011-12 has had a relentless impact on farms, and caused $35 million loss in crops alone. The drought was provoked by low snow cover and warm temperatures during winter 2011, and continuing exacerbation by record warmth during spring 2011. Though a warmer spring allowed for the growing season to begin early, soil moisture was exhausted sooner than expected. A March heatwave kicked the drought up a notch, expediting the growth en masse, particularly across the Plains and Midwest.

Perhaps the NOAA’s findings will push Congress and the White House to target greenhouse gas emissions, which surely have had a hand in the world’s ever-growing climate change. The White House is gearing towards putting a cap on greenhouse gas emissions for power plants, a major source of emissions. US emissions are still high — and though they have been reduced this year through the use of natural gases, renewable energy for electricity, and fuel-efficient cars — there’s still more to be done.

Dr. Das recently tweeted a letter to President Obama by the MIT Technology Review called, “Dear Mr. President: Time to Deal with Climate Change.” In this letter, the editors argue that addressing climate change must take top priority in the next four years.

However, the political reality in Obama’s second term is that lawmakers are divided and polarized in both Washington and state capitals, and other pressing issues will direct the nation’s attention, such as the economy — jobs, fiscal cliff, revenue, taxes, deficit and debt — immigration, and gun violence. Once again, the energy and environmental policies, and climate change debate will unfortunately take a backseat until the mid-term election in 2014. It’s anybody’s guess as to what will happen in 2015.

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

January 10, 2013

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“Milk Price Fight Boils Over” — Wall Street Journal, 13 November 2012

With the drought and soaring feed costs, farmers have had a tough break this year. California’s dairy farmers, however, are experiencing more bad fortune: separate from the federal laws that regulate milk pricing, California has also implemented its own system of pricing. The state sets minimum milk pricing for buyers every month.

California has one of the biggest dairy industries in the US; but growing feed prices and slow economic growth has produced smaller milk production, which has ultimately increased milk prices.

While federal law sets milk prices at $2.50 per 100 pounds of milk, California has lowered its prices in order to benefit cheese-makers. As seen in the chart, California’s prices have never exceeded $2.00; and though prices are slowly increasing, they aren’t increasing quickly enough to save dairy farmers’ businesses.

This year, at least 100 California dairy farmers are closing down; and much of the state’s 1,600 dairy farmers are experiencing financial woes. Though there isn’t a maximum-set milk price, many dairy farmers stay close to the minimum so as to remain competitive. Cheese-makers contest raising the minimum price, since that would persuade cheese-makers to move out of state.

Many think that changing state pricing wouldn’t be enough to prevent dairy farmers from going out of business — most California dairy farmers face additional costs, such as paying higher prices for animal feed since they don’t grow it. This, in turn affects milk production, where milk per cow is decreasing because feed costs have sharply increased.

Some dairy farmers and cheese-makers propose that the market should decide pricing; however, because it takes several years for a cow to develop to full production, it’s difficult for dairy farms to match production to the marketplace.

This situation presents a Catch 22: if California keeps its current milk pricing, then dairy farms go out of business and cheese-makers stay in business; if the state increases milk pricing, then more dairy farms will likely stay open and cheese-makers will leave the state.

How can California save dairies, but also keep cheese-makers in state? Can, or should, the “market” decide the winner and loser, or — based on tax revenue, job creation and retention criteria – is it the state’s decision?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

November 30, 2012

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“Across Corn Belt, Farmland Prices Keep Soaring” — New York Times, 22 October 2012

This year, the US experienced its worst drought in over 50 years, destroying corn and soybean crops across the Corn Belt. Surprisingly, regardless of the drought, farmers are continuing to invest more in planting. Taking advantage of low interest rates, farmers are snatching up land, rather than investing in stocks and bonds.

Even in our tough economy, farmland prices – with the exception of the recession in 2008 – have doubled since 2005. Banks are worried that the same thing that jumpstarted the recession will occur with farmland to create a “farmland bubble”. But such a bubble is far from farmers’ worries; farmers are more concerned about growing their businesses so they can produce more crops and increase their income. Rather than buying stocks or leaving their money in the bank, many farmers feel that investing money in farmland is more practical.

The demand for farmland is high, which has caused some banks to worry that farmers will make poor choices. Such was the case in the 1970s and 80s, when many farmers were piling up more debt to acquire more land, and using their farms as collateral. The debt inevitably left many farms in ruin and led to sinking land values.

The drought has caused a surge in soybean and corn prices, probably a main factor in the farmland boom. The Department of Agriculture has reported that the likely net farm income for 2012 is $122 billion, a 4% rise from the $117 billion in 2011, the record net income level since 1973.

Farmers have less debt then 30 years ago. Low interest rates also make borrowing less expensive, which can be helpful for farmers; but farmers might be in trouble if interest rates rise and crop prices fall.

The question to answer: since farmers have continued to invest in land, will we see a reemergence of plummeting land values? And what happens if, in 2013, farmers have to suffer through another drought?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

November 12, 2012

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“Drought’s Grip Is Wide, Deep”- Wall Street Journal, 4 Sept 2012

Though Hurricane Isaac brought relief to one of our driest summers, the drought still has the capability of slowing our economy.

Farms have faced the brunt of repercussions, severely effecting corn and soybean crops, and increasing prices of feed for chickens, hogs and cattle. Many cattle ranchers and dairy farmers have found it cheaper to slaughter their livestock, which, in turn, affects food companies’ profit margins. According to the Department of Agriculture, food prices could climb 3% to 4% from 2012-13. Food prices rose from 2.5% to 3.5% in 2011-12.

Among other price increases is the growing cost of gasoline. Ethanol, a corn-based fuel that is mixed with gasoline, is a likely source of mounting gas prices. Gasoline prices are now around $3.78, having risen over 40 cents since July.

Regardless of the drought, farm incomes will grow 3.7% this year, to $122.2 billion. This is partly due to elevated prices of corn, soybeans and land, which are compensating for any losses. This, however, hasn’t widely stirred economic growth.

Recent rains cannot undo damages incurred, but may be able to facilitate next year’s soybean crop. Our current economic situation could worsen if moisture isn’t restored for next year’s growing season.

The question to answer: Will inflated food prices cause consumers to spend less on big ticket items, such as flat screen TVs and computers?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

October 10th, 2012

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“How to Live High on the Hog During a Drought” – Wall Street Journal, 4 Sept 2012

Droughts can severely affect the lives of farm animals; livestock are often slaughtered if their living costs increase too rapidly. Farmers look at the situation economically, and sometimes selling an entire outfit makes more sense than continuing to run the show.

According to the National Climatic Data Center, 2012 has been the hottest year on record. Our summer was unfailingly warm; since June, corn prices have grown 41%, while soybean prices have grown 33%. On the same note, prices for hogs and cattle have dropped 19% and 8%.

There is a rise in the slaughter rate – the rate for hogs has shot up to 16%, when, at this time of year, the rate is usually 4-6%. The drought has raised livestock feed prices, persuading farmers to liquidate their assets.

In late 2007 and mid-2008, grain doubled in price, which pushed farmers into thinning their herds. The monthly average of slaughtered hogs increased to 10 million, from a steady rate of 8-9 million. However, the price of hogs recuperated in 2010-11.

The question to answer: how will our hand in climate change continue to affect the cost of food?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

October 10th, 2012

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