The sugar-ethanol-oil nexus in Brazil: Exploring the pass-through of international commodity prices to national fuel prices

Palazzi, Rafael Baptista; Meira, Erick; Klötzle, Marcelo Cabús

doi:10.1016/j.jcomm.2022.100257

Cited by 11 publications

(6 citation statements)

References 76 publications

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“…By contrast, we find that HO and Brent had a significant influence on the hydrous and anhydrous prices. These results are consistent with previous research by Palazzi et al (2022), who also reported the impact of international oil prices on local ethanol prices. Our findings further suggest that hydrous ethanol is the highest net transmitter to anhydrous ethanol.…”

Section: Data Presentation and Resultssupporting

confidence: 93%

“…As shown in the table, Brent, WTI, HO, DLG, RBOB, Corn, and Corn‐BR transmit shocks, while the remaining commodities are net receivers of shocks, with the oil market playing a dominant role in the whole system and Platts, Anh, and NG being the highest receivers. These findings support research by Palazzi et al (2022), who argue that international oil prices have a decisive influence on Brazilian ethanol prices.…”

Section: Data Presentation and Resultssupporting

confidence: 91%

“…An increase in energy prices tends to cause a corresponding increase in ethanol prices, potentially leading to a marginal impact on sugar production. Additionally, the higher deviation can be related to government interference in gasoline prices (Costa & Burnquist, 2016;Palazzi et al, 2022), which directly impacts ethanol price and production, as well as the oligopolistic behavior of the ethanol sector in Brazil. 1 These findings suggest that investors should engage in a dynamic hedging strategy to account for these unique factors in the Brazilian fuel sector.…”

Section: Energymentioning

confidence: 99%

“…The Brazilian commodity futures market is characterized by thin liquidity, resulting in limited hedging and portfolio diversification capacity (Mattos & Garcia, 2004). Moreover, the spot market dominates the price discovery mechanism in Brazil's agricultural futures market, and the prices of agricultural products are sensitive to international prices, particularly the fuel market, which is a crucial source of price transmission (Palazzi et al, 2022;Quintino & David, 2013;Quintino et al, 2017). Overall, Brazil's commodity market suffers from low liquidity and insufficient hedging and portfolio diversification capacities.…”

mentioning

confidence: 99%

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Dynamic connectedness between energy markets and the Brazilian cash market: An empirical analysis pre‐ and post‐COVID‐19

Palazzi,

Assaf,

Klotzle

2023

Journal of Futures Markets

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Brazil's significant commodity production is internationally recognized, yet the absence of a mature futures market exposes it to price risks and international shocks. This study explores the dynamic connectedness between commodity futures and the Brazilian cash markets, using a time‐varying parameter vector autoregressive model. We also assess COVID‐19's impact on this connectedness. We find a significant influence of oil prices on Brazilian ethanol prices, and particularly emphasize the Heating Oil spillover effect on ethanol in the post‐COVID‐19 era. We also note the ascension of Brazilian soybean spot markets' international significance since 2017, amplifying their role in global grain price discovery. Finally, by computing hedge ratios and effectiveness between commodity futures contracts and Brazilian spot prices, our study reveals soybean cash price as the most effective hedge. These insights deepen comprehension of connectedness within Brazilian commodity markets, thereby guiding investors and policymakers in strategic energy policy decisions.

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Section: Data Presentation and Resultssupporting

confidence: 93%

Section: Data Presentation and Resultssupporting

confidence: 91%

Section: Energymentioning

confidence: 99%

mentioning

confidence: 99%

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Dynamic connectedness between energy markets and the Brazilian cash market: An empirical analysis pre‐ and post‐COVID‐19

Palazzi,

Assaf,

Klotzle

2023

Journal of Futures Markets

Self Cite

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“…Another recently explored topic is the possible relationship between Brazilian ethanol spot and futures prices at the Brazilian Exchange, B3 [14,15], as well as the possible relationship between ethanol prices in the Brazilian and USA markets [15][16][17][18][19].…”

Section: Literature Reviewmentioning

confidence: 99%

Relative Prices of Ethanol-Gasoline in the Major Brazilian Capitals: An Analysis to Support Public Policies

2022

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The use of biomass as an energy source has advanced in recent decades, given the scientific evidence that it is a solution to the environmental problems faced globally. In this context, biofuels derived from biomass have a prominent role. Among the countries where this alternative is the most promising, Brazil stands out, just behind the USA. It is, therefore, necessary to assess whether such a replacement is economically viable. For such an assessment, the behavior of the relative price of bioethanol/gasoline is crucial. In the present work, the degree of temporal persistence of relative prices, considering the existence of shocks to which they are exposed, is evaluated, considering 15 important Brazilian capitals, via the detrended fluctuation analysis (DFA). The degree of correlation is also evaluated through the detrended cross-correlation analysis (DCCA) between fuel prices in São Paulo, the capital of the most populous state and main producer of bioethanol, with the capitals of the 14 states selected for the analysis. The period of analysis takes place between 2004 and 2020. The use of DCCA with sliding windows was recently proposed and we also evaluate DFA dynamically in this way, and this, together with an extended sample in the context of Brazilian fuel prices, represents the main innovations of the present work. We found that the degree of persistence varies significantly depending on the capitals analyzed, which means that price variations are localized and demand regional stimulus policies. Furthermore, it was found that the correlation with São Paulo is less intense in the most geographically distant capitals. Such evidence is important and complementary to infer how integrated the national bioethanol market is, in order to support public policies aimed at its consolidation.

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An investigation into the relationship between sugarcane and grain prices in Brazil: a fractional cointegration approach

Quintino¹,

Yaya

Ogino

et al. 2023

Biofuels Bioprod Bioref

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We investigate cointegration in prices of corn, soybean and sugarcane in Brazil using a fractional integration analysis, fractional cointegration in a pairwise set‐up and fractional cointegrating vector autoregressive (FCVAR) set‐up. Monthly real prices of sugarcane, corn and soybean are considered, in the period between March 2006 and May 2022. The results of fractional integration first show that the prices of these agricultural commodities are non‐mean reverting, and cointegrated in a pairwise fractional sense. The results, based on the FCVAR model, show the prices of the three commodities moving in different directions, that is, sugarcane and soybean negatively, while sugarcane and corn, and corn and soybean move in positive directions. The positive relationship between sugarcane and corn has implications for the ATR (‘açúcar total recuperável’ – total recoverable sugar, TRS) pricing of derivatives of two commodities, such as sugar and ethanol. Also, corn and soybean are close substitutes and are expected to have similar pricing dynamics over time.

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The sugar-ethanol-oil nexus in Brazil: Exploring the pass-through of international commodity prices to national fuel prices

Cited by 11 publications

References 76 publications

Dynamic connectedness between energy markets and the Brazilian cash market: An empirical analysis pre‐ and post‐COVID‐19

Dynamic connectedness between energy markets and the Brazilian cash market: An empirical analysis pre‐ and post‐COVID‐19

Relative Prices of Ethanol-Gasoline in the Major Brazilian Capitals: An Analysis to Support Public Policies

An investigation into the relationship between sugarcane and grain prices in Brazil: a fractional cointegration approach

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