Researcher IFPRI Develops Gauge of Excessive Corn-Price Swings

The International Food Policy Research Institute developed a gauge of price swings for corn, wheat and soybeans that it said can help policy makers identify “excessive volatility.”

The so-called Excessive Food Price Variability Early Warning System might also be used to trigger the release of global emergency food reserves, Maximo Torero, markets and trade unit director at the Washington-based researcher, said on a conference call today.

“This is not a way to define excessive speculation,” he said. “This is a way to define excessive price volatility. Many people have been talking about price volatility, but there has not been a clear measure.”

French President Nicolas Sarkozy has blamed speculators for driving up food prices and made commodity regulation a priority for the country’s presidency in 2011 of the Group of 20 countries. Corn, wheat and soybeans all reached the highest levels since 2008 in Chicago trading this year.

IFPRI’s gauge determines the statistical probability of a price move on a particular day, based on trading in the prior 60 sessions, Carlos Martins Filho, a senior research fellow at the institute who helped develop the model, said on the call. If the chance is 5 percent or less, the move is deemed extreme or abnormal, he said.

‘First Step’

“Our goal is here to define a clear method and metric to define when commodities are experiencing clear higher volatility,” Martins said. “You first have to identify, consistently and in a very transparent manner, periods of extreme price volatility. It’s a first step. It’s not a tool that will lead to any policy prescription.”

G-20 farm ministers last month agreed to study setting up emergency reserves for food-deficient countries. IFPRI’s gauge may serve along with national criteria as a mechanism to decide when to tap those stockpiles, Torero said.

“We are using futures prices in the largest commodity exchange, the Chicago Board of Trade, to discover price abnormalities,” he said. “These are the prices that later on will be translated to developing countries.”

IFPRI counted the French and Norwegian governments, the World Bank, the Bill and Melinda Gates Foundation and confectioner Mars Inc. among its more than 90 donors in 2009, according to the researcher’s website.

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