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Technology, Markets, and Ethanol Plants Shutdown Price

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  • Sesmero, Juan P.
  • Perrin, Richard K.
  • Fulginiti, Lilyan E.
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    Abstract

    Price volatility and policy changes may compromise the ability of corn ethanol plants to operate above average variable cost and avoid shutdown. This study derives a variable cost function capable of accommodating two features of ethanol plants; 1) some inputs are used in fixed proportions and some are not, and 2) supply of different types of byproducts may be subject to unobservable market frictions. The function is estimated based on data from a survey of ethanol plants. Increased size does not seem to lower plants’ shutdown price. Frictions in byproduct markets seem to result in sub-optimal byproduct mix choices that increase ethanol shutdown price by up to 10 cents per gallon. Futures and other price discovery instruments in byproduct markets may enhance plants’ ability to prevent shutdown.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124915.

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    Date of creation: 12 Aug 2012
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    Handle: RePEc:ags:aaea12:124915

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    Keywords: Agribusiness;

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    1. Lambert, Dayton M. & Wilcox, Michael D. & English, Alicia & Stewart, Lance A., 2008. "Ethanol Plant Location Determinants and County Comparative Advantage," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(01), April.
    2. Perrin, Richard K. & Fretes, Nickolas F. & Sesmero, Juan Pablo, 2009. "Efficiency in Midwest US corn ethanol plants: A plant survey," Energy Policy, Elsevier, vol. 37(4), pages 1309-1316, April.
    3. Gallagher, Paul W. & Brubaker, Heather & Shapouri, Hosein, 2005. "Plant Size: Capital Cost Relationships in the Dry Mill Ethanol Industry," Staff General Research Papers 12306, Iowa State University, Department of Economics.
    4. Mahmud, S F & Robb, A L & Scarth, William M, 1987. "On Estimating Dynamic Factor Demands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 2(1), pages 69-75, January.
    5. Gardner Bruce, 2007. "Fuel Ethanol Subsidies and Farm Price Support," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-22, December.
    6. Stefanou, Spiro E, et al, 1992. "Dynamic Structure of Production under a Quota: The Case of Milk Production in the Federal Republic of Germany," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 19(3), pages 283-99.
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