Price Volatility, Reserves and Public Policy. Brian Wright Chair, Agricultural and Resource Economics UC Berkeley ICABR Ravello Italy June 19, 2013. Post- “ Inside Job ” I perceive a need for disclosure:. Recent or current grant support: AMIS initiative of G20
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Chair, Agricultural and Resource Economics
Ravello Italy June 19, 2013
Recent or current grant support:
Assume stylized facts of major grain markets:
Available supply is used in two production trendways:
Available supply at time t, production trendat, for a given year comes from the current harvest htand from stocks xt-1carried in from the previous harvest:
ct= at – xt.
If production trendstorers are competitive and aim to maximize expected profits, and the only cost of storing is the (constant) opportunity cost of capital r, then their behavior will result in the following complementary conditions for equilibrium intertemporal arbitrage:
Biofuels as classic (but huge) price discrimination
Divert grain from inelastic (food) to elastic energy) demand market
-no exporter government will starve its citizenry and hope to live to enjoy the rewards of trade
Whether all or most of these factors will continue to impact markets for food and agricultural products in the years to come is difficult to say. It does, though, appear that extreme weather events have become more likely as a consequence of ongoing climate change. That factor alone may mean that markets may continue to exhibit a marked degree of volatility in the future, even larger than the 'traditional' volatility that has always plagued agricultural markets. Also