MARKETS AND DETERMINANTS OF FOOD PRICES - Food Security, Food Prices and Climate Variability - page 93

In the United States, over 50 percent of the US crop is produced in Iowa, Minnesota,
Nebraska and Illinois. Because US production contributes such a large portion of the global
commodity prices, it is possible to connect local weather caused production variability to the
interannual variability of the corn price. Figure 5.1 shows the annual first differences of US
corn production plotted against the first differences of the annually aggregated corn prices
from 1969 to 2010. US corn production accounts for 30 percent of the variance of the corn
prices, due to the US's large contribution to the world export market. Even with the US
providing nearly half of all corn to the export market, there are many other sources of vari-
ability in the international corn price, including market speculation, policy changes, trends in
production and corn uses over the past few decades. These influences are even more complex
at the national and local scale.
Corn price markets have long been volatile, but in recent years the volatility has increased.
Recent price increases have been attributed to market inelasticity due to increased demand
from use of corn for ethanol production in the United States (Wright, 2011; Abbott et al .,
2011). Diffenbaugh et al . (2012) have shown that demand from the large biofuel industry in
the United States has increased the volatility of US maize markets in the past decade and will
exacerbate volatility in the near-term due to climate impacts on food production.
The United States has a cellulosic ethanol standard for gasoline, whose goal is to make
renewable fuels cost competitive and on the market. To meet this standard, biofuel factories
have emerged that use corn to create ethanol to produce enough fuel to reduce by 20 percent
the US gasoline demand by the year 2012 (Schnepf, 2007). A year after the 2007 passage of

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Production first differences

FIGURE 5.1 International corn future prices and US corn production from 1969-2010 (source:
price data from IndexMundi and production data from the USDA).