Food Security Management in an Era of Biofuels - Completed
Recent developments in modeling and estimating markets for storable commodities makes it possible to begin to model the energy and biofuels markets as an increasingly integrated market. This project developed and validated a model based on sugarcane, a storable agricultural commodity with stochastic supply. The team also developed a simple stochastic model of energy markets (emphasizing transportation uses) and food markets, linked by the production of biofuels and allowing for the feedback of energy costs on agriculture. They integrated those models to assess various policy alternatives and to understand the influence of petroleum prices on the biofuels market.
Wright’s group established the importance of stocks-to-use ratios as indicators of potential price volatility. They also developed methods of integrating trends and short-term dynamics in estimating models of behavior of markets for storable commodities.
Market volatility in 2010 provided an opportunity to pursue economic interpretation as rational market dynamics rather than bubbles or manipulation as a contribution to lively policy global debates. The Wright group improved the method to estimate commodity market behavior and applied it to the global sugar market, demonstrating its superior performance. In addition, the group worked to develop an econometric method of estimating capital costs using multiple commodity markets, and researched simple ways to model interactions between major grain markets.
The Wright group faced continual demands to apply its commodity market modeling work to address the recent wild fluctuations in grain. Was biofuel demand responsible for price spikes? The group found no evidence of a new pernicious role of destabilizing speculation. The group’s work has led to increased global interest in measurement of stocks of three major grains, and in stocks-to-use ratios as key indicators of the likelihood of price instability. Wright’s group has been able to produce reasonable estimates of storage and price behavior for sugar (as a model crop), with serial correlation of price that is consistent with values calculated for the market.