1. A PRELIMINARY LOOK AT CLIMATE CHANGE EFFECTS ON US CORN MARKET VOLATILITY IN THE CONTEXT OF BIOFUEL MANDATE Wyatt Thompson, Seth Meyer, Elliott Campbell These are preliminary experiments. Contact authors for permission to use or quote the paper, handout, or presentation. Paper presented at: Workshop on Mitigation of CO2 Emissions by the Agricultural Sector October 3-4, 2011 Bergen, Norway

2. Goals Preliminary links from global climate change to regional climate change to corn yields in key producing states to economic impacts taking policy into account. Effects on corn yield average and standard deviation.

3. US Corn Yield Shocks (average & distribution) Corn Yield Shocks in Corn Belt States (average & distribution) US Corn Area Global Climate Models Regional Climate Models US Corn Yield US Corn Stocks US Corn Supply US Corn Demand US Corn Food Use US Biofuel Markets & Policies (Mandates) US Food Consumers US Corn Feed Use US Corn Ethanol Corn Price US Corn Exports CLIMATE TO YIELD ESTIMATES average effect, distribution around trends FAPRI-MU STOCHASTIC ECONOMIC MODEL multi-commodity (only corn shown), structural, dynamic

4. US corn yields, bushels per acre marketing year 2020

5. Corn used for ethanol production, millions of bushels marketing year 2020

6. Correlation statistics marketing year 2020

7. Conclusions from Preliminary Experiments Preliminary results suggest: – Market demand matters. If demand is inelastic, then corn price changes more than supply in proportional terms. – Climate change and policy interact to determine market variability. For example, US biofuel policy sets minimum biofuel use requirements. Mandates are more likely to be binding, or to become more binding, in some settings than others. Changing average and distribution of corn yields changes the frequency of these settings. – Implications for corn exports and domestic food prices modest, but ranges widen. – As climate change increases corn yield variability, the role of corn yield in the market (e.g. corn price, exports, biofuel mandate cost) expands. Further research could extend work to other crops, other regions, or farther future.