The role of storage dynamics in annual wheat prices

Identifying the drivers of global crop price fluctuations is essential for estimating the risks of unexpected weather-induced production shortfalls and for designing optimal response measures. Here we show that with a consistent representation of storage dynamics, a simple supply–demand model can explain most of the observed variations in wheat prices over the last 40 yr solely based on time series of annual production and long term demand trends. Even the most recent price peaks in 2007/08 and 2010/11 can be explained by additionally accounting for documented changes in countries' trade policies and storage strategies, without the need for external drivers such as oil prices or speculation across different commodity or stock markets. This underlines the critical sensitivity of global prices to fluctuations in production. The consistent inclusion of storage into a dynamic supply-demand model closes an important gap when it comes to exploring potential responses to future crop yield variability under climate and land-use change.

[1]  Reviving the Competitive Storage Model: A Holistic Approach to Food Commodity Prices , 2011 .

[2]  J. Boussard,et al.  Storage and the Volatility of Agricultural Prices: A Model of Endogenous Fluctuations , 2009 .

[3]  C. Timmer.  Did Speculation Affect World Rice Prices , 2009 .

[4]  D. Dawe.  The unimportance of "low" world grain stocks for recent world price increases. , 2009 .

[5]  D. Drabik,et al.  How biofuels policies affect the level of grains and oilseed prices: Theory, models and evidence , 2013 .

[6]  E. Fraser,et al.  Food stocks and grain reserves: evaluating whether storing food creates resilient food systems , 2015, Journal of Environmental Studies and Sciences.

[7]  G. Meijerink,et al.  Riding the wave: high prices, big business? : the role of multinationals in the international grain markets , 2009 .

[8]  N. Ramankutty,et al.  Influence of extreme weather disasters on global crop production , 2016, Nature.

[9]  Brian D. Wright,et al.  The empirical relevance of the competitive storage model , 2011 .

[10]  Karla Z. Bertrand,et al.  Accurate market price formation model with both supply-demand and trend-following for global food prices providing policy recommendations , 2015, Proceedings of the National Academy of Sciences.

[11]  Michael K Adjemian,et al.  Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement , 2014 .

[12]  Satyajit Bose,et al.  Assessing the evolving fragility of the global food system , 2015 .

[13]  Marc F. Bellemare,et al.  Rising Food Prices, Food Price Volatility, and Social Unrest , 2015 .

[14]  S. Fan,et al.  Anatomy of a crisis: The causes and consequences of surging food prices , 2008 .

[15]  Brian D. Wright.  The Economics of Grain Price Volatility , 2011 .

[16]  T. Iizumi,et al.  Changes in yield variability of major crops for 1981–2010 explained by climate change , 2016 .

[17]  Brian D. Wright,et al.  The Welfare Effects of the Introduction of Storage , 1984 .

[18]  D. Dawe,et al.  How much have domestic food prices increased in the new era of higher food prices , 2015 .

[19]  W. Martin,et al.  Export Restrictions and Price Insulation During Commodity Price Booms , 2011 .

[20]  T. Wheeler,et al.  Evidence for a climate signal in trends of global crop yield variability over the past 50 years , 2013 .

[21]  A. Deaton,et al.  Competitive Storage and Commodity Price Dynamics , 1996, Journal of Political Economy.

[22]  P. Berck,et al.  Farm Acreage Shocks and Crop Prices: An SVAR Approach to Understanding the Impacts of Biofuels , 2012 .

[23]  Timothy J. Wallington,et al.  Impact of biofuel production and other supply and demand factors on food price increases in 2008 , 2011 .

[24]  Wallace E. Tyner,et al.  What's Driving Food Prices? , 2008 .

[25]  J. Boussard,et al.  A Simple Model of Endogenous Agricultural Commodity Price Fluctuations with Storage , 2011 .

[26]  M. Kalkuhl.  How Strong Do Global Commodity Prices Influence Domestic Food Prices in Developing Countries? A Global Price Transmission and Vulnerability Mapping Analysis , 2014 .