Competitive Storage,Biofuels and the Corn Price |
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| Authors: | Christopher L. Gilbert Harriet Kasidi Mugera |
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| Affiliation: | Christopher Gilbert is with the SAIS Bologna Center, Johns Hopkins University. Email: christopher.gilbert@jhu.edu for correspondence. Harriet Kasidi Mugera is with the World Bank, Washington, DC. Earlier versions of this paper were prepared for the annual meeting of the Agricultural Economics Society, Dublin, April 2017, and the Commodity and Energy Markets Association Conference, Oxford, June 2017. The authors have benefited from comments from Phil Abbott, John Baffes and attendees at the AES and CEMA conferences. The findings, interpretations, and conclusions expressed are entirely those of the authors and do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Our thanks are due to anonymous referees for their valuable comments on earlier drafts. |
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| 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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| Keywords: | Oil and corn prices ethanol regulations and capacity constraints competitive storage model structural break analysis |
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