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Competitive Storage, Biofuels and the Corn Price

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  • Christopher L. Gilbert
  • Harriet Kasidi Mugera

Abstract

The use of corn as an ethanol feedstock has been stimulated by US biofuels policy. This has changed both the position and the slope of the corn demand curve and increased the pass‐through from crude oil to corn prices. The principal constraints on ethanol consumption and production have been regulation (the biofuels mandate), capacity constraints in ethanol refining and the blend wall, which puts a ceiling on the ethanol content of gasoline. The incidence of these constraints has varied over time. We model these impacts within the competitive storage model using structural break regression analysis. Our analysis shows that the pass‐through has varied over time in relation to the share of ethanol in total US corn use. Our analysis provides robust empirical evidence of an increase in the pass‐through from crude oil to corn prices over the period from the start of the century to a high level over 2004–2008 when corn use in ethanol was growing very fast. This enhanced sensitivity was driven by competition for corn as an ethanol feedstock with stock demand exerting strong upward pressure on the corn price.

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  • Christopher L. Gilbert & Harriet Kasidi Mugera, 2020. "Competitive Storage, Biofuels and the Corn Price," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(2), pages 384-411, June.
    • Handle: RePEc:bla:jageco:v:71:y:2020:i:2:p:384-411
    DOI: 10.1111/1477-9552.12362
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    2. Bilgili, Faik & Kocak, Emrah & Kuskaya, Sevda & Bulut, Umit, 2022. "Co-movements and causalities between ethanol production and corn prices in the USA: New evidence from wavelet transform analysis," Energy, Elsevier, vol. 259(C).
    3. Esposti, Roberto, 2021. "On the long-term common movement of resource and commodity prices.A methodological proposal," Resources Policy, Elsevier, vol. 72(C).
    4. Palazzi, Rafael Baptista & Meira, Erick & Klotzle, Marcelo Cabus, 2022. "The sugar-ethanol-oil nexus in Brazil: Exploring the pass-through of international commodity prices to national fuel prices," Journal of Commodity Markets, Elsevier, vol. 28(C).
    5. Kocak, Emrah & Bilgili, Faik & Bulut, Umit & Kuskaya, Sevda, 2022. "Is ethanol production responsible for the increase in corn prices?," Renewable Energy, Elsevier, vol. 199(C), pages 689-696.
    6. Zhuo Chen & Bo Yan & Hanwen Kang, 2022. "Dynamic correlation between crude oil and agricultural futures markets," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1798-1849, August.
    7. de Paula Leite, Ana Catarina & Pimentel, Liliana Marques & de Almeida Monteiro, Leandro, 2024. "Impact of agricultural and energy prices on the biofuels market through a VAR-VEC model," Renewable Energy, Elsevier, vol. 232(C).

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