Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors

Tokgöz, Simla; Elobeid, Amani; Fabiosa, Jacinto F.; Hayes, Dermot J.; Babcock, Bruce A.; Yu, Tun‐Hsiang; Dong, Fengxia; Hart, Chad E.

doi:10.1111/j.1467-9353.2008.00436.x

Cited by 38 publications

(25 citation statements)

References 3 publications

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“…Given that the RFS2 mandate is fully in place, a 2012-like production shortfall in 2015 caused corn prices to nearly double, increasing to $417.89. This increase in corn price is higher than that found in a previous study by Tokgoz et al [31], which showed that, when conditions like those in the 2012 drought arose under an ethanol mandate scenario, this would cause corn prices to increase by 43.8%. On the other hand, we found that corn prices would only increase by 12% when relaxing the ethanol RFS mandate by 50% under the same drought situation.…”

Section: Analysis Designcontrasting

confidence: 54%

Policy Uncertainty and the US Ethanol Industry

et al. 2017

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Abstract:The Renewable Fuel Standard (RFS2), as implemented, has introduced uncertainty into US ethanol producers and the supporting commodity market. First, the fixed mandate for what is mainly cornstarch-based ethanol has increased feedstock price volatility and exerts a general effect across the agricultural sector. Second, the large discrepancy between the original Energy Independence and Security Act (EISA) intentions and the actual RFS2 implementation for some fuel classes has increased the investment uncertainty facing investors in biofuel production, distribution, and consumption. Here we discuss and analyze the sources of uncertainty and evaluate the effect of potential RFS2 adjustments as they influence these uncertainties. This includes the use of a flexible, production dependent mandate on corn starch ethanol. We find that a flexible mandate on cornstarch ethanol relaxed during drought could significantly reduce commodity price spikes and alleviate the decline of livestock production in cases of feedstock production shortfalls, but it would increase the risk for ethanol investors.

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Section: Analysis Designcontrasting

confidence: 54%

Policy Uncertainty and the US Ethanol Industry

et al. 2017

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“…Using a multi-commodity, multi-county partial equilibrium model to examine the impact of the expanded US ethanol production on planted acreage crop prices, livestock production and retail food prices, Tokgoz et al (2008) found that expanded ethanol production would increase the long-run prices of both crops and livestock, with the increase in livestock being greater. The authors also indicated that an increase in the price of oil would lead to an expansion of the US ethanol sector.…”

Section: Review Of the Literaturementioning

confidence: 99%

Causality between market liquidity and depth for energy and grains

et al. 2012

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This paper examines the roles of futures prices of crude oil, gasoline, ethanol, corn, soybeans and sugar in the energy-grain nexus. It also investigates the own-and cross-market impacts for lagged grain trading volume and open interest in the energy and grain markets. According to the results, the conventional view, for which the impacts are from oil to gasoline to ethanol to grains in the energy-grain nexus, does not hold well in the long run because the oil price is influenced by gasoline, soybeans and oil. Moreover, gasoline is preceded by only the oil price and ethanol is not foreshadowed by any of the prices. However, in the short run, two-way feedback in both directions exists in all markets. The grain trading volume effect across oil and gasoline is more pronounced in the short run than the long run, satisfying both the overconfidence/disposition and new information hypotheses across markets. The results for the ethanol open interest shows that money flows out of this market in both the short and long run, but no results suggest across market inflows or outflows to the other grain markets.

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“…This work pointed out that when the intercept of the ethanol supply curve is above what would be the market price of ethanol without any tax credit, much of the tax credit is redundant (de Gorter andJust 2008, 2009). Tokgoz et al (2007) first used the model maintained by the Food and Agricultural Policy Research Institute (FAPRI) to make long-run projections of the effect of biofuel production on commodity prices and production. They used the model again (Tokgoz et al 2008) to simulate the effect of an exogenous event in one market on other markets; in particular, they explored the effect of a spike in crude oil price and the effect of a significant drought coupled with a renewable fuels mandate.…”

Section: Previous Workmentioning

confidence: 99%

How market efficiency and the theory of storage link corn and ethanol markets

2012

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In this article we use the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explore statistical evidence for the link. We propose that a long-run no-profit condition is established in distant futures markets for ethanol, corn, and natural gas and then use the theory of storage to define an inter-temporal equilibrium among these prices. The relationship shows that under certain conditions, future price expectations will influence current spot prices and that a short-term relationship between input and output prices will exist. This short-term relationship will contain fixed costs. We demonstrate validity of the theory using a structural price model and then by means of time-series techniques. AbstractIn this article we use the theories of market efficiency and supply of storage to

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Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors

Cited by 38 publications

References 3 publications

Policy Uncertainty and the US Ethanol Industry

Policy Uncertainty and the US Ethanol Industry

Causality between market liquidity and depth for energy and grains

How market efficiency and the theory of storage link corn and ethanol markets

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