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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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