Showing posts from August, 2012

Markets still react to Bernanke

Okay, I'm going to briefly weigh in again where I probably shouldn't---the macro situation. Apparently in response to Bernanke's speech in Jackson Hole today, the stock market and treasury bills rallied modestly, and the 10-year T-bill rate fell over 6 basis points.  I suppose one could argue this was due to something else, but I don't see anything other explanation in the news. Paul Krugman summarized Bernake's speech as: 1. Things are really, really bad. 2. The damage is cumulative; the longer this goes on, the worse the prospects for the future. 3. The Fed has the power to do a lot to help the economy. 4. While you can argue that there are costs to action, the case for major costs is quite weak, and in particular much weaker than the case for major benefits. 5. Therefore, what we at the Fed will do is, um, sit on our hands some more, and think very seriously about maybe, someday, doing something. While Krugman greatly supports the Fed trying

Brad Plumber writes what I think about the drought

Brad Plumber over at Ezra Klein's Wonkblog writes my thoughts better than I do :-) While my comments about CAFO's in my post the other day are sure to offend many, I did try to choose my words carefully.  There are many ethical and environmental issues that surround CAFOs, and I'm not dismissing those issues.  But we should be aware of indirect consequences of CAFOs.  Some of those indirect consequences can be good for feeding the world and even good for the environment.  It's only responsible to spell out all of those tradeoffs, and I see that as my job. There are good arguments to be made that modern industrial agriculture is good for the environment in much the same way as high-density urban living is good for the environment: by concentrating these activities we leave less of a footprint on the planet as a whole. Incidentally, unlike the other guy in the news these days, I think "wonk" suits Wonkblog very well.

Sea Ice Extent

Sea ice extent is one of the more interesting barometers of climate change. This year has been a record low, beating the previous record from 2007.  Extent is a little more than half the 1979-2000 median, or about 6 standard deviations below it. From Justin Gillis's article today in the NYT: “It’s hard even for people like me to believe, to see that climate change is actually doing what our worst fears dictated,” said Jennifer A. Francis, a Rutgers University scientist who studies the effect of sea ice on weather patterns. “It’s starting to give me chills, to tell you the truth.”.... ....“It’s an example of how uncertainty is not our friend when it comes to climate-change risk,” said Michael E. Mann, a climate scientist at Pennsylvania State University. “In this case, the models were almost certainly too conservative in the changes they were projecting, probably because of important missing physics.”

What's the price of corn in your meat? Less than you think.

In my OpEd last week I had a lot of back and fourth with the editor.  I probably had too many statistics and my first draft was just too long.  I also should have provided background information up front for the statistics I wanted to present. One thing that got dropped in the process was an explanation for why retail food prices will rise so little even though corn prices have increased 60 percent.  So much of our food is ultimately derived from corn, or from other commodities like wheat and soybeans whose prices track corn prices fairly closely.  But it still makes little difference. Take meat, for example.  There are only 3-5 pounds of corn used to make an additional pound of beef, and between 2 and 3 pounds of corn for a pound of chicken or pork.   The calculation isn't particularly straightforward, but these numbers are probably about right ``on the margin," as economists like to say. This can vary a bit from operation to operation or how it's measured, but feed

Are we coping with extreme heat better than the past?

I'm live at CNN .  This is the biggest splash I've ever had.... Extreme heat and droughts -- a recipe for world food woes With extreme heat and the worst drought in half a century continuing to plague the farm states, there are important lessons to be learned for all of us -- farmers, consumers and the world's poorest populations alike -- about the effect of climate change. The Agriculture Department announced this season's first major crop yield forecasts, and they weren't pretty: a nationwide average of 123.4 bushels of corn per acre, the lowest level since 1995. Soybean yield is expected to be low too, though not as bad as corn. The United States, which is the world's largest producer and exporter of staple grains, is grappling with the biggest surprise in production shortfalls since the Dust Bowl of the 1930s. Certainly, this July surpassed July 1936 as the hottest month on record .  So, how will the devastation affect U.S. crop farme

Forecasting Corn Yields

My colleague Wolfram Schlenker has developed forecasts for this year's corn yield based on weather through August 6.  We've been considered pessimists by some, since this model predicts really big declines in crop yields under projected climate change.  But this year we're the optimists: our model predicts a US yield only a 14 percent below trend. That's bad, but it's not nearly as bad as USDA's forecast last Friday of 25 percent below trend. I'm replicating his post so you don't have to click through: USDA today announced its  forecast for corn yields . It might be fun to compare those forecast to one using a statistical model of corn yields that my colleague  Michael Roberts  and I have developed. It uses only four temperature variables (two temperature and two precipitation variables - if you want to read more, here's a link  to the paper). The temperature variables in 2012 are shown here . All weather variables in the model are seas

Should the Ethanol Mandate be Temporarily Suspended?

There seems to be a big push to roll back the ethanol mandate, at least temporarily, due to the crop losses and high prices for corn, soybeans and wheat we're experiencing this year.  See, for example, Colin Carter and Henry Miller's Op Ed in the New York Times. How much would a temporary suspension of the mandate affect prices? As I write, the future price for corn delivered in December 2012 is $7.95/bu.  The price for delivery in December 2013 is just $6.30.  So, there is no incentive to store commodities, and inventories are very low.  So, any reprieve on the demand side will push directly on this year's price. With regard to prices, it would be equivalent to reducing the size of crop losses.  If we lose 1/3 of the crop from heat and drought, and we reduce demand by 1/3 by temporarily halting ethanol production, we'd probably go back to early-Spring prices of around $4-5/bu. One problem with this back-of-the-envelope calculation is that ethanol prod