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Impact of Biofuels Policy on Agribusiness Stock Prices, The

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Author Info
Fatma Sine Tepe
Xiaodong Du () (Center for Agricultural and Rural Development (CARD), Food and Agricultural Policy Research Institute (FAPRI))
David A. Hennessy () (Center for Agricultural and Rural Development (CARD))

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Abstract

Corn markets are important for many industries, including the seed, fertilizer, meat production/processing and agricultural machinery sectors, all of which are highly concentrated. Oligopoly theory suggests that corn input and field equipment suppliers likely benefit from policies that support corn markets, such as U.S. biofuels policy, while meat companies are likely adversely affected. Employing a linear two-factor (S&P 500 and corn prices) equilibrium asset pricing model, this study investigates the impact of biofuels policy on U.S. agribusiness and food processing firm stock prices. Conditional heteroskedasticity in stock returns is accounted for using a GARCH(1,1) model. Corn price increases are found to have positive effects on excess stock returns for seed, fertilizer and machinery companies, while the impact on meat companies is negative. The results may be interpreted as evidence that crop input suppliers gain from U.S. biofuels policy while meat processors lose.

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Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 09-wp497.

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Date of creation: Sep 2009
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Handle: RePEc:ias:cpaper:09-wp497

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Related research
Keywords: biofuels policy; excess stock returns; GARCH effect; linear factor model. JEL Classification: D43; L13; Q14.;

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