(C) Daily Kos
This story was originally published by Daily Kos and is unaltered.
. . . . . . . . . .



How much is global warming responsible for inflation [1]

['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.', 'Backgroundurl Avatar_Large', 'Nickname', 'Joined', 'Created_At', 'Story Count', 'N_Stories', 'Comment Count', 'N_Comments', 'Popular Tags']

Date: 2022-10-24

Standardized precipitation evaporation index (soil moisture) Sept 2022 from global SPEI index (creative commons license.)

A lot of us have been wondering how large the effect of this years climate disasters have had on prices. This diary is an attempt to at least estimate their affect on food prices. Although there are non food effects, the heat wave closed some Chinese factories and barge traffic in Europe, this is an attempt to see if the climate disasters affected food prices.

Background

Commodity prices for corn, wheat, rice and soybeans are all near or at all time highs. The farm prices of major commodities have been rising since 2020. Corn is up 115% from August 5 2020 ($313-$679) and 30.8% since Oct 2021. Wheat is up 75% from Oct 2020 (519-882) and 39% since Oct 6 2021. Rice is up 40% in 2 years and 19% since 2020 (12 to 13.5 to 16.2 dollars per 1000lbs), and Soybeans are up 56% since since Oct 2020 and 12% since 2021. For what it’s worth, natural gas is up 256% since 2020 and 24% since 2021. All prices are from trading economics 5 year charts.

According to the 6th IPCC report, 40% and up of crop yield variations from year to year can be explained by weather mostly heat or dryness (flooding has a lesser effect) reducing yield. The vulnerability of crops to excess heat is increasing, at least in the US Midwest, due to increased dependence on crops vs animal products, which are less susceptible to temperature effects. Other things that affect crop production are disease, weeds, and planting different crops.

Financial interests (speculators) watch the ending stocks of a commodity for clues that indicate the status of supply and demand. Ending stocks for corn, wheat, rice and soybeans have mostly fallen since 2020, but the picture is complicated. Although stocks have been falling, world stocks are not a low level. But most of the world stocks are held in China, which is a net importer, there is some question of if these are available for trade. If China is excluded from analysis then stocks are very low, near 2010s levels, which lead to food price increases and some revolutions. That period is considered traumatic by most agricultural economists. Also the price of energy affects food prices. The effect on agricultural commodity prices above is controversial, since food should have its own supply demand curve, even though energy does affect input prices. However, there is no doubt that energy costs impact the consumer price index CPI, and the farm price of food is a small portion of the price of food.

The table is an attempt to gauge the effect of recent disasters on the cost of agricultural commodities. The rows list crop failures and estimate the loss of output. The data is from the USDA which publishes a world agricultural production circular. The loss in production is the reduction in production from previous years in million metric tons (MMT). The USDA country lists were scanned for large drops in production. Drops of more than 7% over a year for a country were flagged. Google was then googled for the cause of the shortfall, which is listed.

The USDA also publishes estimates of ending stocks. People smarter than you use this information to speculate in commodities. The row “change in ending stocks” at the end of a year shows that change.

The table

country 2022 crop cause Change in mmt EU heat wave wheat drought -3.54 India wheat drought -6.59 Pakistan wheat flood -1.06 Ukraine * wheat war -12.51 Argentina wheat drought -5.0 Morocco wheat drought -4.84 Iraq wheat drought -.5 US winter wheat wheat drought -4. Ending stock reduction wheat 2022-2023 -7.57 Sum possible global warming wheat 2022-2023 -25.5 2022 Corn Crop Cause MMT US drought Corn drought -29.94 EU corn Corn drought -14.78 Tanzania Corn army worm drought fertilizer -1.01 Malawi d Corn drought -.86 Zambia Corn less area -.91 (25.25)% Zimbabwe Corn input price -1.16 (42%) Ukraine war * Corn war -10.63 Pakistan flood Corn flood -1.74 End Stock Reduction Corn 2022 -8 Sum Possible Global Warming Corn 2022 -48.33 2022 rice crop year MMT US less Ca rice drought -.84 Pakistan rice flood -1.7 EU rice drought -.37 India monsoon rice drought flood -6.29 (4.8)% End Stock reduction (consumption up) rice -11.3 Sum Possible Global Warming rice 2022 -9.2 Soybean 2022 Country year MMT US soy drought -4.15 Uruguay soy drought -.57 Ukraine soy war -.30 EU soy drought -.21 (7%) Stock increase soy 2022 9.0 Sum possible global warming soy -4.9 Wheat 2021 Canada wheat drought -13.53 US drought wheat drought -4.96 (9%) Afghanistan wheat drought -.61 Russia wheat drought -9.85 Kazakhstan wheat drought -2.26 Uzbekistan wheat drought -.70 Belarus wheat drought -.55 Algeria wheat drought -.30 Turkey wheat drought -2.0 Iran wheat drought -3.0 Iraq wheat drought -1.7 Stock decrease -14. Sum possible global warming -39.0 Corn 2021 year loss Ethiopia corn drought -1.56 Kenya corn drought -0.5 Turkey corn drought -.6 Stock increase corn 2021 12 Sum possible global warming corn 2021 -2.66 Rice 2021 2021 loss US California planting less (drought) drought less acres -1.13 Sri Lanka organic farming -.33 Egypt DAB -1.10 Philippines hurricane hurricane -.12 Stock increase 2021 3.2 Sum possible global warming 2021 -1.25 Soybean 2021 2021 Paraguay drought -5.70 China drought -3.20 Serbia ? -.1 Zambia drought flood locusts -.05 Brazil drought -14.5 Argentina drought -2.70 Stock change 2021 -8.0 Possible cause global warming 2021 -26.1

* The USDA uses satellite images to gauge yields. Ukraine’s loss is probably due to unplanted wheat I think. This may not be the total reduction.

The results are clear. Catastrophic drought and/or heat (they go together) is enough to cause reductions in ending stocks. There is a question of how much worse global warming is making droughts, but in cases where use outpaced demand, a relatively small portion, 25 to 30% of the effects of climate was enough to reduce food stores over the year. So global warming is a cause of increased agricultural commodity prices.

There are issues with this analysis. First, these disasters are superimposed on a general increase in food production, and demand which appear to be continuing. They also underestimate the effect of global warming. They miss slow effects like ozone pollution, and pollinator depletion. They will also miss 2 year and longer effects, like the 4 year drought in the horn of Africa. Those would show up in a general reduction in food production, which hasn’t happened. Also industrial effects like power failures due to heat waves were ignored.

Trying to translate commodity prices into inflation

It is much harder to translate these commodity prices into food prices. The CPI is published here. The economics literature shows controversy, with no consensus.

For the period August 2021-2022 the CPI increased 8.3%. Food prices were up 11%, Energy up 19%, medical care up 4.1%, toys up 2.8%, and wine at home 2.5%. Food price increases seem to be what is making the conversation today, but the connection to commodity prices is harder to make.

Flour price is up by 24.2% in the last year, which is a bigger increase than in wheat. Commodity wheat went from $.129/lb to $.148/lb. According to the federal reserve, flour was $.556/ per pound for all purpose flour, up from $.448. This $2.78 for a 5 pound bag with $0.74 worth of flour in it. So the price of the wheat is about a fourth of the price of the flour. Bread is up 11% but flour is only about 6% of the price of bread. Anyway since even economists have punted on this issue, so will I. I simply add up the increase in the price of foods affected by commodity price increases, at least partially caused by weather disasters as a portion of inflation and expect that that is the maximum effect.

item weight % in CPI increase % sept 21 Sept 22 inflation % increase attributed to cereal products 1.009 16.2 .162 Bread other than white .11 15.3 meat 1.1 4.7 .052 fish 1 .28 8.0 .022 Milk .206 15.2 .031 vegetables .5 9.2 .046 Coffee 2 .187 15.7 .029 butter .083 26. .022 Margarine 44.0 sum food affected .364 for compare All food 13.65 11.2 1.52 Gasoline 4.238 18.2 .769 All energy 8.22 19.8 1.6 CPI all 8.2

1 Fish prices affected by the drought, and climate change

2 Coffee prices and drought. Same drought as Soybeans.

It looks like agricultural commodity price increases are diluted by the time they reach the consumer. Companies pass more than the increased cost from the commodity along, but the percent increases to the consumer are much lower. The estimated maximum contribution to total inflation was about .364% which is 4.5% of price increases. All food was about 18% of the increase in household budgets. So in the US global warming does not have big an effect on inflation, but it does seem to be keeping food stocks low.

[END]
---
[1] Url: https://www.dailykos.com/stories/2022/10/24/2126375/-How-much-is-global-warming-responsible-for-inflation

Published and (C) by Daily Kos
Content appears here under this condition or license: Site content may be used for any purpose without permission unless otherwise specified.

via Magical.Fish Gopher News Feeds:
gopher://magical.fish/1/feeds/news/dailykos/

You are viewing proxied material from magical.fish. The copyright of proxied material belongs to its original authors. Any comments or complaints in relation to proxied material should be directed to the original authors of the content concerned. Please see the disclaimer for more details.