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Preliminary Assessment of the Drought's Impacts on Crop Prices and Biofuel Production

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  • Bruce A. Babcock

Abstract

Drought has sharply decreased the size of the US corn and soybean crops this year. While there is no way of knowing for sure how low yields will go, the continuation of hot and dry weather in the major corn and soybean producing areas indicates that yield losses could be of historic proportions. The potential economic impact of low yields-particularly corn yields-is heightened this year because of a low buffer stock of corn, and because 10 percent of our motor fuel supply comes from corn. This briefing paper presents preliminary estimates of the economic impacts of low US corn and soybeans yields. The impacts are estimated for the 2012-13 crop year that begins on September 1st. Because we do not know what future yields will be or what future gasoline prices will be, we make the preliminary estimates using a stochastic partial equilibrium model. This type of model solves for market-clearing prices for a large number of random "draws" of yields and gasoline prices. The model is calibrated to information that is available to us at the current time, including the USDA's supply and demand projections and the level of futures prices for gasoline, corn, and ethanol.

Suggested Citation

  • Bruce A. Babcock, 2012. "Preliminary Assessment of the Drought's Impacts on Crop Prices and Biofuel Production," Center for Agricultural and Rural Development (CARD) Publications 12-pb7, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:12-pb7
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    Cited by:

    1. Jones, Jason P.H. & McCarl, Bruce A., 2016. "Impacts of U.S. Production-Dependent Ethanol Policy on Agricultural Markets," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236258, Agricultural and Applied Economics Association.
    2. Condon, Nicole & Klemick, Heather & Wolverton, Ann, 2015. "Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence," Food Policy, Elsevier, vol. 51(C), pages 63-73.
    3. Timothy A. Wise, 2012. "The Cost to Developing Countries of U.S. Corn Ethanol Expansion," GDAE Working Papers 12-02, GDAE, Tufts University.
    4. James M. Griffin, 2013. "U.S. Ethanol Policy: Time to Reconsider?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    5. Jason P. H. Jones & Zidong M. Wang & Bruce A. McCarl & Minglu Wang, 2017. "Policy Uncertainty and the US Ethanol Industry," Sustainability, MDPI, vol. 9(11), pages 1-14, November.

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