Posts Tagged ‘Energy’

Biofuels, Speculation Blamed for Global Food Market Weirdness

05 Oct

A new analysis of sudden rises in global food prices puts the blame on biofuel policy and mortgage-meltdown-style speculation, which may have fundamentally changed how food markets function.

Many other explanations have been proposed, and the latest analysis — a series of mathematical models and statistical evaluations that seem to match theory with real-world patterns — is not conclusive. But it does make a strong case.

“There’s a literature of a hundred-plus articles, saying this might be the cause, or that might be the cause,” said network theorist Yaneer Bar-Yam of the New England Complex Systems Institute. “We looked quantitatively, and found two important factors. Speculators cause the bubbles and crashes, and ethanol causes the background rise.”

Bar-Yam and the NECSI team, whose analysis was published Sept. 21 on arxiv, work at the intersection of social phenomena and network analysis. In earlier research, they’ve explored the global economy’s changing structure and early-warning signals that may precede crashes.

More recently, they’ve studied how social unrest may have been fueled by food price spikes in 2008 and again in 2011. It’s not only the rise in food prices that’s proved troubling, but the rapidity. Shifts have been big and sudden, in stark contrast to the generally slow fluctuation of food prices since the mid-20th century.

Among the possible causes put forward by economists are drought, meat-intensive dietary habits and market hypersensitivity to supply and demand. Another is corn-based biofuel: In less than a decade, some 15 percent of the world’s corn production has been converted from food to fuel. Perhaps most controversially, some economists have blamed a flood of speculators betting on the rise or fall of food prices.

The FAO Food Price Index (blue solid line) and the prices produced by Bar-Yam's model (dotted red line). Image: Bar-Yam et al./arxiv

Speculating on food isn’t new, but it was long restricted to farmers and companies involved in food production. For them, speculation was a classic form of hedging: A farmer could, for example, make a bet that crop prices would fall. If they didn’t, he’d benefit from his harvest’s high prices; but if they did fall, winning his bet would offset the losses. Speculation was, on the whole, a stabilizing force.

In the late 1990s, however, a financial industry-led push for deregulation — which would later result in the Enron debacle and the California energy crisis, and the 2008 mortgage meltdown — changed how food speculation worked. Anyone could participate. Bets on food were suddenly made by investment companies who could package and repackage their bets into the sorts of derivatives made famous by the mortgage crisis.

According to some economists, this disconnected food prices from basic laws of supply and demand, and made them prone to wild swings. But others disagreed, saying the mathematical signs of cause-and-effect were hazy or absent.

“In the last three to four years, many things have happened in the economy that weren’t anticipated by most folks, and are not explained even today. I don’t know if that means the basic laws of supply and demand aren’t operating, but the way supply and demand is manifested is not understood,” said Jeffrey Fuhrer, research director at the Federal Reserve Bank of Boston. “We don’t have an understanding of the role of speculative markets.”

Bar-Yam and colleagues approached this morass with a series of mathematical models designed to simulate the trend-following investment behavior of speculators and food producers. Key to their models was a link between food prices among speculators and the so-called spot price of food at markets where actual commodities, not their hypothetical future values, are traded.

Some critics of the proposed speculation-food bubble link say spot prices are established independently, from moment to moment, in isolation from any speculative influence. But when Bar-Yam’s team phoned people in the business, at granaries and the U.S. Department of Agriculture, they were told that spot prices are set in reference to the futures market at the Chicago Board Options Exchange.

With the link to speculation established, the researchers let their model run. What resulted was a pattern of month-to-month prices similar to the peaks and valleys seen in real-world food price fluctuations since 2007. However, speculation didn’t replicate the observed long-term, year-to-year rise in food prices.

Those only appeared when Bar-Yam’s team added the shift of corn from use as food to use in ethanol biofuels. With both speculation and biofuels included, the model produced a series of food prices uncannily similar to recent history (see graphic above.)

Overlay their model’s simulated market graph on a graph of the U.N. Food and Agriculture Price Index between 2004 and 2011, and “it fits amazingly well,” said Bar-Yam. “It reproduces the peaks. It reproduces the intermediate blip. The quality of the fit is astoundingly good.”

Models are necessarily pale, oversimplified representations of complex reality, of course, and retrospectively replicating a dataset doesn’t prove the researchers’ model right. But it seems to fit better than other proposed explanations for rising, volatile food prices.

'You had trillions of dollars go into commodities from the housing and stock markets, and it blew away the pricing mechanisms.'
When Bar-Yam’s group looked for a statistical connection between the 2008 spike and drought in Australia, none could be found. Neither could a link be found to rising grain demand, which has come primarily from China and India, both of which met their needs by increasing grain production internally rather than buying abroad. Another plausible explanation, rising oil and energy prices, didn’t hold up to rigorous statistical analysis.

Finally, the researchers found no evidence that global food markets have simply become extra-sensitive to tiny changes in supply and demand. If anything, the basic laws of supply and demand appear temporarily suspended: Supplies increase but prices don’t fall, and demand goes unmet.

While slowly rising prices are a problem, however, the rapid short-term bursts are more troubling. In the last decade, those bursts occurred only after 2007, a time when investors moved money en masse into commodities. That timing fits with another finding of Bar-Yam’s model: Some speculation is fine, even beneficial, but too much makes a market prone to instability.

“Under circumstances where speculators are fairly limited in their engagement, there’s nothing wrong. But when they’re a large fraction of the market, you’re in trouble,” said Bar-Yam. “You had trillions of dollars go into commodities from the housing and stock markets, and it blew away the pricing mechanisms.”

Brookings Institution economist Homi Kharas called Bar-Yam’s model “carefully done,” and said it “provided solid empirical analysis” that diagnoses of speculative influence are correct. However, he warned against attaching too much weight to a model. Food price bubbles also aren’t new, Kharas said.

“Prices today are roughly at what they were in the mid-1970s,” Kharas said. “At that time, nobody had heard of these futures, these index-traded funds. How do we know these are new changes, and not a return to things in the past?” But Richard Cooper, a Harvard University economist who in the mid-1970s studied that bubble, said speculation by Russian grain buyers probably contributed to that bubble.

Bar-Yam’s new analysis will surely be challenged, Cooper said. “Somebody will come along and say the fundamentals weren’t characterized properly. There will be technical arguments. But it’s up to the challengers to show where their analysis has gone wrong.”

Image: Sign in a cafe. (Cory Doctorow/Flickr)

Citation: “The Food Crises: A quantitative model of food prices including speculators and ethanol conversion.” By Marco Lagi, Yavni Bar-Yam, Karla Z. Bertrand, Yaneer Bar-Yam. arXiv, Sept. 21, 2011

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Six science selections

16 Mar
  • How Radiation Threatens Health – Why and how does exposure to radiation make you ill? What levels of exposure are dangerous and what levels are lethal?
  • Fukushima is a triumph for nuke power – Quake + tsunami = 1 minor radiation dose so far, says El Reg. Tragic as recent events in Japan have been. We should be building more nuclear reactors not fewer. Global warming caused by burning more and more fossil fuel in coming decades will have a far more detrimental effect on many more people than minor nuclear leaks.
  • Dog walking ‘is good exercise’ – Owning a dog but not walking it is bad for the dog’s owner as well as the dog. NHS Choices unravels the spin on recent headlines proclaiming dog ownership good for health.
  • Top banana – Atomic absorption spectroscopy is being used to assess how well banana peel can filter heavy metals, such as copper, from waste water. Preliminary results look promising and could lead to an ecologically sound method of industrial cleanup that uses a renewable but otherwise wasted source material.
  •″>Toxic robot – A new high-speed robotic screening system for chemical toxicity testing was recently unveiled by collaborating US federal agencies, including the National Institutes of Health. The system will screen some 10,000 different chemicals for putative toxicity in what represents the first phase of the "Tox21" program aimed at protecting human health and improving chemical testing.
  • Crystal unknowns – Frank Leusen and his co-workers at the University of Bradford, England, have turned to a quantum mechanical approach to help them predict the three known possible polymorphic structures of a sulfonimide. The work could assist crystallographers in structure determination of unknowns

My latest selection of six science stories, picked up by David Bradley Science Writer @sciencebase.

Six science selections is a post from: Sciencebase Science Blog


We won’t reach Alpha Centauri until the 24th century…unless we have an energy breakthrough [Mad Science]

27 Sep
If you take humanity's current energy and technological capacity and project a steady increase into the future, the chances of us reaching the stars any time soon look bleak. Even our nearest stellar neighbor is at least 300 years away. More »

Iceland Considers Humanoid Pylon Design to Carry Electricity

16 Aug

By Duncan Geere, Wired UK

An architecture and design firm called Choi+Shine has submitted a design for the Icelandic High-Voltage Electrical Pylon International Design Competition which proposes giant human-shaped pylons carrying electricity cables across the country’s landscape.

The enormous figures would only require slight alterations to existing pylon designs, says the firm, which was awarded an honorable mention for its design by the competition’s judging board. It also won an award from the Boston Society of Architects Unbuilt Architecture competition.

On their website, the architecture firm said: “Making only minor alterations to well-established steel-framed tower design, we have created a series of towers that are powerful, solemn and variable. These iconic pylon-figures will become monuments in the landscape. Seeing the pylon-figures will become an unforgettable experience, elevating the towers to something more than merely a functional design of necessity.”

The figures can be placed into different poses, with the suggestion that the landscapes could inform the position that the sculpture is placed into. For example, as a power line ascends a hill, the pylons could look as if they’re climbing. The figures could also stretch up to gain increased height over longer spans.

“Subtle alterations in the hands and head combined with repositioning of the main body parts in the x, y and z-axis, allow for a rich variety of expressions. The pylon-figures can be placed in pairs, walking in the same direction or opposite directions, glancing at each other as they pass by or kneeling respectively, head bowed at a town,” wrote the architects.

That doesn’t mean the manufacturing process has to be complex, however. Each pylon is made from the same basic bits (head, arms, torso, legs, etc.), which could be fabricated and then mounted into the desired position using pre-assembled joints.

Choi+Shine added: “Like the statues of Easter Island, it is envisioned that these 150-foot-tall modern caryatids will take on a quiet authority, belonging to their landscape yet serving the people, silently transporting electricity across all terrain, day and night, sunshine or snow.”

Images: Choi+Shine

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What Caffeine Actually Does to Your Brain [Explainer]

13 Jul
For all of its wild popularity, caffeine is one seriously misunderstood substance. It's not a simple upper, and it works differently on different people with different tolerances—even in different menstrual cycles. But you can make it work better for you. More »


Magnifying Solar Panels' Energy As Cheap as Coal, Start-up Claims

29 Sep


If you've ever set a leaf aflame with a magnifying glass, you'll understand the basics of the photovoltaic cells that may finally make renewable energy affordable enough for everyone.

"The world runs on cheap energy," said Paul Sidio of Sunrgi. "We want to be the Wal-Mart of solar power."

Sunrgi says it developed a way to make solar energy as cheap as coal using panels that focus the sun onto photovoltaic cells equipped with innovative cooling systems.

The company claims its magnifying glasses intensify the sun's rays 2000 times onto photovoltaic cells, which increases the heat to 3300 degrees Fahrenheit. While such heat will fry silicon in no time, the company says its electronics actually stay just about six degrees above ambient temperature thanks to special heat convection and generous spacing of the electronics.

Topping off the design, the units track the sun's trajectory to maximize energy collection throughout the day.

"We generate six or seven times greater power than flat panel, non-tracking solar panels," Sidio said.

Sunrgi is showing off a prototype of the cell at the Wired NextFest pavilion in Chicago's Millennium Park, where the free future tech expo is open to the public through October 12.

In keeping with their desire to make solar energy as cheap as possible, the company designed its electronics so that they can be built like a computer's motherboard – meaning its innards can be built on any PC assembly line in the world.

That leads to a projected cost of 5 to 6 cents per kilowatt-hour over a twenty-year period in the American southwest.

That's cheaper than power created by almost all traditional energy sources.

Solar energy has always been long on hope but short on economic competitiveness. But if Sunrgi can make good on those promises and prices once its production design is finished and UL approval is won, pulling electricity out of the sun's rays could become more than a well-meaning indulgence.

For those of you excited about covering your roof with Sunrgi's technology, you may have to wait a while.

The company says it plans to first sell to utilities and large companies.

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Images: Sunrgi

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