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The Impact of Biofuels Policy on Agribusiness Stock Prices

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  • Tepe, Fatma
  • Du, Xiaodong
  • Hennessy, David A.

Abstract

Corn markets are important for many industries. These include 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 likely lose. This study investigates the impact of biofuels policy on U.S. agribusiness stock prices. Corn futures prices are found to have a structural change in November 2006, consistent with the expansion of U.S. biofuels policy support. A linear two-factor (S&P500 and corn prices) equilibrium asset pricing model is estimated on two subsamples, one before and one after the estimated change point. Conditional heteroskedasticity in stock returns is accounted for using a GARCH(1,1) model. In the more recent period, 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 policies while meat processors lose.

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File URL: http://onlinelibrary.wiley.com/doi/10.1002/agr.20265/abstract
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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32530.

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Date of creation: 03 Mar 2011
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Handle: RePEc:isu:genres:32530

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
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Web page: http://www.econ.iastate.edu
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Cited by:
  1. Brandon Schaufele & David Sparling, 2011. "Regulation and the financial performance of Canadian agribusinesses," Agricultural Finance Review, Emerald Group Publishing, vol. 71(2), pages 201-217, July.

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