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Impact of Biofuels Policy on Agribusiness Stock Prices, The

Author

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  • Fatma Sine Tepe
  • Xiaodong Du
  • David A. Hennessy

Abstract

Corn markets are important for many industries, including the seed, fertilizer, meat production/processing and agricultural machinery sectors, all of which are highly concentrated. Oligopoly theory suggests that corn input and field equipment suppliers likely benefit from policies that support corn markets, such as U.S. biofuels policy, while meat companies are likely adversely affected. Employing a linear two-factor (S&P 500 and corn prices) equilibrium asset pricing model, this study investigates the impact of biofuels policy on U.S. agribusiness and food processing firm stock prices. Conditional heteroskedasticity in stock returns is accounted for using a GARCH(1,1) model. Corn price increases are found to have positive effects on excess stock returns for seed, fertilizer and machinery companies, while the impact on meat companies is negative. The results may be interpreted as evidence that crop input suppliers gain from U.S. biofuels policy while meat processors lose.

Suggested Citation

  • Fatma Sine Tepe & Xiaodong Du & David A. Hennessy, 2009. "Impact of Biofuels Policy on Agribusiness Stock Prices, The," Midwest Agribusiness Trade Research and Information Center (MATRIC) Publications (archive only) 09-wp497, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:mpaper:09-wp497
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    Cited by:

    1. Baines, Joseph, 2015. "Fuel, Feed and the Corporate Restructuring of the Food Regime," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 42(2), pages 295-321.
    2. Brandon Schaufele & David Sparling, 2011. "Regulation and the financial performance of Canadian agribusinesses," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(2), pages 201-217, August.
    3. Baines, Joseph, 2015. "Price and Income Dynamics in the Agri-Food System: A Disaggregate Perspective," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 157992, June.
    4. Khalfaoui Rabeh, K & Boutahar Mohamed, B, 2011. "A time-scale analysis of systematic risk: wavelet-based approach," MPRA Paper 31938, University Library of Munich, Germany.
    5. Baines, Joseph, 2014. "The Ethanol Boom and the Restructuring of the Food Regime," Working Papers on Capital as Power 2014/03, Capital As Power - Toward a New Cosmology of Capitalism.
    6. Valdes, Rodrigo, 2017. "What drives the regional integration of agribusiness stocks? Evidence in worldwide perspective," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258265, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    biofuels policy; excess stock returns; GARCH effect; linear factor model.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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