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

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Author Info

  • Mallory, Mindy L.
  • Irwin, Scott H.
  • Hayes, Dermot J.

Abstract

This article uses the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explores 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 nearby futures prices and that a short-term relationship between input and output prices will exist. We demonstrate validity of the theory using a structural price model and then by means of time-series techniques.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 6 ()
Pages: 2157-2166

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:2157-2166

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Ethanol; Corn; Energy; Storage; Arbitrage; Cointegration; Futures; Price-analysis;

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References

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Citations

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Cited by:
  1. Etienne, Xiaoli L. & Irwin, Scott H. & Garcia, Philip, 2013. "Dissecting Corn Price Movements with Directed Acyclic Graphs," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151279, Agricultural and Applied Economics Association.
  2. Baumeister, Christiane & Kilian, Lutz, 2013. "Do oil price increases cause higher food prices?," CFS Working Paper Series 2013/10, Center for Financial Studies (CFS).
  3. Rajcaniova, Miroslava & Drabik, Dusan & Ciaian, Pavel, 2013. "How policies affect international biofuel price linkages," Energy Policy, Elsevier, vol. 59(C), pages 857-865.
  4. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.
  5. Drabik, Dusan, 2011. "The Theory of Biofuel Policy and Food Grain Prices," Working Papers 126615, Cornell University, Department of Applied Economics and Management.
  6. Trujillo-Barrera, Andres & Mallory, Mindy L. & Garcia, Philip, 2012. "Volatility Spillovers in U.S. Crude Oil, Ethanol, and Corn Futures Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), August.

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