My wife and I are spending the summer of 2012 at our farm near Cedar Rapids, Iowa. It is a relatively small corn, soybean, and cow/calf operation in the east central part of the state. We are surrounded by other farmers, many of whom are getting on in years, who typically farm between 500 and 1,000 acres. A few also feed cattle and there is one confined pork operation nearby.

For someone interested in agricultural price volatility, this summer has been a three-month seminar in real time. There was an early spring in Iowa, and record acres of corn and beans were planted. Some of our neighbors even brought conservation-reserve land back into production. Plantings were fencerow to fencerow—although fewer fences line the landscape as farmers move out of the livestock business and fences are removed to accommodate the larger 12- and 16-row equipment that is now commonplace. Early commodity prices were good, but not spectacular in April and May, and with prospects for a large crop, many of our neighbors made forward contracts to deliver large quantities of corn and beans to local ethanol and bean-crushing plants. 

Temperature and rainfall at the time of pollination and grain filling dramatically affect corn yields—and this year the combined effect was dreadful. The corn crop literally curled up and died before our eyes. The corn on sandy hills burned up first, but the crop on deeper, blacker soils soon followed. National corn prices followed the thermostat. Cash prices of corn went from about $6 per bushel in May to more than $8 in early August. And then came June and July. National reserve stocks of corn were very low, so price stability was dependent on average or better weather. Instead, extreme weather came in all forms. Average temperatures at the Cedar Rapids weather station for June, July and the first week of August were the highest in recorded history. Maximum temperatures for 22 of the past 70 days exceeded 90 degrees. Total rainfall was only 1.1 inch, compared to an historical average of 8.1 inches. It is the driest summer since 1910.

With the corn crop currently denting, and thus “fixed” (more rain would not now improve yields), all attention turned to soybeans. Beans have a resilient character to them, with the capacity to shed blossoms until growing conditions “are right.” Having lost much of the corn crop, our neighbors are busy reassuring each other that “the bean crop is made in August”—but only if rains arrive. Unfortunately, there is little moisture predicted in the medium-term forecasts.

Worst hit of all have been the livestock producers. Pastures are toast, and watering holes and rivers are drying up. The sizeable creek that runs through our farm is now the tiniest of trickles. The likelihood of having to move the cows and calves is growing daily, and the question of whether our farm well will have enough capacity to supply both the animals and us is now a critical issue. The problems of cattle feeders are even more dire. Prices for fed cattle are down, and the extreme heat is taking its toll—quite literally. Fat cattle weighing 1,400 to 1,500 pounds do not gain weight well, nor do they even breathe well. Farmers who own the two operations nearest us report that they dare not sort and ship steers to market because of the heat. They each report having lost two animals from heat-related respiration problems, each animal valued at about $1,600. Moreover, even without heat losses, they are faced with extremely high feed costs. And high prices do not end with corn and soybean meal. 

Forage and hay prices have been even more affected by climate variability. The large round bales that weigh upwards of a ton and typically sell for $60 are now selling for $250! The price is partly driven up by truckers from Missouri and Arkansas, locations hit earlier and even more severely, coming to eastern Iowa to purchase forage. So tight is the forage market that farmers are baling grass from the Conservation Reserve (recently permitted by the government), waterways, and even ditches. Plants with any sort of green tint to them are being mowed and baled.

The talk among farmers is, as always, most interesting. About four miles from home is the small town of Waubeek—a tiny burg in a part of Iowa made famous by Grant Wood, best known for painting "American Gothic" and other scenes of the rural Midwest. Each morning at about 8:30, locals gather in a limestone building called (perhaps miscalled) a restaurant to have watery coffee and rolls, to trade stories, and to establish bragging rights on a variety of issues from yields, to prices, to number and sizes of tractors. Conversation over the years has always centered on the dreadful nature of weather, prices and the government, though this year there are nuances in the stories being told. They range from the very happy, “I sold a load of old-crop corn this morning for $8.14, the highest price in my whole life as a farmer;” to the “I walked my corn fields this morning. Where I got 220 bushels last year, I don’t think the crop will make 80 bushels this year.” No one at the table thought their corn crops would yield more than 120 bushels; and everyone noted that virtually all of those yields would be discounted in price because of low test weights.

Talk then turned to new seed varieties, mostly from Pioneer and Monsanto, which have transgenic drought resistance built into them. Bags (80,000 kernels) of seed—enough to plant about 2.5 aces—range in price from $300 to $400. There is hope, but not much confidence, that the new seeds will help compensate for the low rainfall. The farmers report that the companies, which are far from loved because their seed prices are perceived as being too high, are backing away from yield claims. The conversation also took up the pros and cons of “green” chopping the stalks and immature corn to make silage. It turns out that this strategy is fraught with nitrate problems arising mainly from this year’s weather. The laughing summary comment was “anyway, we have way too much standing corn and way too few cattle to make that solution work.” Laughter continued as they talked about those 10,000 “crazy folks” who were riding bicycles across Iowa in the heat as part of the annual ride across Iowa.

Most surprising to me is the fact that the conversations are not gloomier. What I had not realized was the increased role that crop insurance was playing in most farmers' operations. Upon checking, I found that about 90 percent of the land is covered by a joint public/private insurance program, in which private companies offer insurance, with the government and farmers sharing in the premia. Many of these policies provide for both price and yield protection and cover losses in excess of 25 percent. For most crop farmers, therefore, the year 2012 will not be good, but it will be far from a disaster. 

But there were also some truly downcast faces at morning coffee. Livestock producers curse the cost of corn and the fact that they are getting little program assistance from the government. They choose their words carefully, but the livestock producers would also be delighted if somehow the ethanol industry went away. Similarly, crop farmers who have no crop insurance, and /or who contracted forward to sell what they expected would be a large harvest at modest prices, now are facing the costly prospect of having to buy high priced corn on the market to fulfill their delivery contracts.

After more assurances to each other that “the bean crop is made in August,” conversations turned to the future. Will marketing be totally messed up because of low flows in the Mississippi River and disrupted barge traffic? What, they ask, will the heat and drought do to land prices? The local area has seen a rapid run-up in land prices, a 32 percent increase between 2011 and 2012, with land sales for the county now averaging $8,000 per acre for medium quality land. And what will happen to cash rents for farmland now averaging $270 per acre? Most of all they ask, what will happen to weather in 2013?  Most of them can see their way through one year of really difficult weather; their primary concern is what happens if there are two 2012s in a row. Opinion divides on whether next year will return to normal, or whether 2012 is a good predictor of many years to come.

One thing of course never changes: their views of the government that range from dismay to disgust. The fact that the current Congress seems unable to pass either a new farm bill or a special bill covering drought, especially for livestock producers, is the subject for special derision. 

Meanwhile, everyone watches the markets, waits, and prays for rain.

In the first decade of the 21^st century, global production of ethanol and biodiesel increased nearly tenfold. If that trend continues, says Rosamond L. Naylor, director of Stanford University’s Center on Food Security and the Environment, national biofuels policies will have an increasingly powerful impact on food prices, food security, energy security, and rural incomes in the developing world.

During a two-hour symposium held on the Stanford campus last Wednesday, Naylor addressed the role of biofuels in global food price volatility and the implications of biofuels development in rural Africa and Asia. Although she acknowledged that global income and population growth have contributed to increased demand for biofuels, she also emphasized “the unbelievable dominance of policy” in driving current trends.

“The main part of this that I think is so significant is the use of mandates,” Naylor said. “Policies such as the United States’ Renewable Fuels Standard (RFS), which sets a national target of using 15 billion gallons of corn-based ethanol per year by 2015, have reshaped price and supply dynamics in both food and fuel markets. “

“When you think about the fact that the US provides half of the world’s corn…the fact that we’re using so much in our gas tanks, biofuels really is changing the nature of global markets,” Naylor said. Policies that fix demand for corn from the ethanol market, she explained, have a destabilizing effect on corn prices, especially in the face of supply shortages.

“When you have mandates you have a quantity that you’re absolutely insisting you use, regardless of the price,” she said. “That inelastic demand leads to more volatile prices with supply shocks.”

Because of the substitutability of basic food commodities, Naylor said, price volatility in the corn market has far-reaching consequences. “Prices of corn ripple through all of the world food economy markets…it affects the demand and supply of wheat and rice and soy, and other things,” she explained. And for poor households in the developing world, she said, “it has big income effects…when you’re spending 70 to 80 percent of your budget on food, you’re going to be hurt the most.”

However, Naylor also noted that biofuel mandates in the developed world could provide valuable market opportunities for developing-country farmers.

In rural Africa and Asia, she said, farmers “see the US having a big mandate, EU having a big mandate, and they think, can they supply into that mandated need?”

For now, it seems, the answer is “maybe.” In Africa, for example, efforts are underway to increase the use of jatropha – an inedible, drought-resistant shrub – as a biofuel feedstock. But Naylor said that low yields and high labor costs are likely to severely limit the economic returns from jatropha-based biofuels.

And in marginal growing conditions, the use of more conventional feedstocks is often restricted by resource availability. In India, for example, where almost all sugarcane is grown under irrigated conditions, expansion of sugarcane area to supply the ethanol market could lead to water shortages. Even if these countries can make large-scale biofuel production economically viable, the benefits to poor farmers could vary widely depending on the structure of the market.

“The implications of biofuel development are going to be quite different,” Naylor said, “depending on the organization of the value chain.”

Dr. Siwa Msangi, a Senior Research Fellow with the International Food Policy Research Institute, agreed. In comments following Naylor’s presentation, Msangi said biofuel development contributes most effectively to rural income growth “when you can have vertical integration…people all along the value chain have to be making money.”

Msangi also noted that commodity price increases, including those driven by ethanol mandates, could benefit small farmers if they are controlled and predictable. “Sharp, fast, sudden price rises – those are the ones that are bad for consumers,” he explained. But prices rises “can be positive…especially if those price rises can be gradual and sustained over time, because that gives people the opportunity to mobilize resources to make use of higher returns.” For example, small farmers at the local or national level can increase their production of crops in high demand for biofuel production.

The emerging connections between agriculture and energy markets are complex, Msangi said, but can be advantageous if handled carefully. “If there are good opportunities for agribusiness, I think there’s a case for taking them,” he said, “but also for being aware of the context and all the issues.”

This was the eighth talk in FSE’s Global Food Policy and Food Security Symposium Series. 

When it comes to climate change and its impacts on agriculture, we may know less than we think.

But according to David Lobell, Assistant Professor in Stanford’s Department of Environmental Earth System Science, acknowledging the gaps in our understanding could help us to more effectively prepare the world’s food system for a warmer future.

Lobell, who has built an impressive career around the study of climate change and its implications for global food security, addressed the topic of agricultural adaptation during a two-hour symposium held on the Stanford campus in early December. His presentation summarized the strengths and weaknesses of climate models in the context of global agriculture, and suggested broad strategies for preparing agriculture for climate change’s inevitable impacts.

Lobell began his talk by reaffirming some common beliefs. The Earth as a whole is unquestionably warming, he said. Precipitation intensity is increasing in high-rainfall areas, and the world’s driest regions are becoming drier.

“Think about the hottest day we currently experience in a 20-year period,” Lobell told listeners. “By mid-century, we’ll be seeing that hottest day every year, as opposed to every 20 years.” During the same period, soil moisture content in many of the world’s major agricultural areas will decrease by as much as 10 to 15 percent, while annual precipitation at the equator and high latitudes will increase by several inches per year.

At the global scale, Lobell said, climate change will have a net negative impact on existing agricultural systems. The world’s rainfed farms will become increasingly vulnerable to heat and water stress.  Growing ranges and seasons for heat-intolerant crops, such as wheat and sorghum, will contract. Although the high latitudes may see some gains from warmer temperatures and CO2 fertilization of certain crops, low-latitude regions – including South Asia and much of Africa – will suffer disproportionate yield losses as temperatures rise.

However, Lobell said that impacts aimed at local and national scales, as opposed to broad regions or the world as a whole, are much more difficult to predict. A moderate change in average rainfall across a continent could translate to drastic increases or decreases in individual countries. For example, while climate models suggest that Africa’s annual rainfall will change by less than 10 percent over the next 50 years, model projections show rainfall in the nation of Sengal changing by anywhere from five to 40 percent over the same period.

Additionally, Lobell said, forecasts of increasing climate variability are frequently overstated. “The number one misperception I hear is that climate change is going to mean more variability,” he noted.  In fact, model projections of year-to-year variability in temperature and precipitation cover a wide range. Some models do show large increases in variability over the next century – but others show a slight decrease.

Because we understand climate impacts best at the long-term and global scales, Lobell said, global responses that address long-term trends are the most likely to serve our future needs. He cautioned against approaches that prepare farmers for short-term variability, such as sudden floods or droughts, but fail to acknowledging the effects of steadily rising average temperatures. He also stressed the value of globally coordinated efforts, particularly those aimed at developing better heat and drought-tolerant crop varieties, to supplement local infrastructure projects.

 “We’re in a world where local resilience depends on global systems,” Lobell noted. He said that the interconnectedness of modern global food markets makes global trends, and global responses, increasingly relevant for local food security.

At both local and global levels, an effective response to climate change will require robust social institutions. Dr. Fatima Denton, Program Leader for Climate Change Adaptation in Africa for the Consultative Group on International Agricultural research, stressed this point in her comments on Lobell’s presentation. “Climate change has really unmasked our governance challenges and the weaknesses in our institutions,” Denton said. “This is not just about biophysical processes…it’s about the development pathways that we choose.”

Lobell agreed. Climate change, he said, presents “an important opportunity for transformation.” He encouraged present and future leaders to think critically about all aspects of the relevant science and policy. “Be skeptical of what you hear,” he advised, “and educate yourself about what we do and don’t know.”

This was the sixth talk in FSE's Global Food Policy and Food Security Symposium Series.