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Dynamic impacts of high oil prices on the bioethanol and feedstock markets

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  • Cha, Kyung Soo
  • Bae, Jeong Hwan

Abstract

This study investigates the impacts of high international oil prices on the bioethanol and corn markets in the US. Between 2007 and 2008, the prices of major grain crops had increased sharply, reflecting the rise in international oil prices. These dual price shocks had caused substantial harm to the global economy. Employing a structural vector auto-regression model (SVAR), we analyze how increases in international oil prices could impact the prices of and demand for corn, which is used as a major bioethanol feedstock in the US. The results indicate that an increase in the oil price would increase bioethanol demand for corn and corn prices in the short run and that corn prices would stabilize in the long run as corn exports and feedstock demand for corn decline. Consequently, policies supporting biofuels should encourage the use of bioethanol co-products for feed and the development of marginal land to mitigate increases in the feedstock price.

Suggested Citation

  • Cha, Kyung Soo & Bae, Jeong Hwan, 2011. "Dynamic impacts of high oil prices on the bioethanol and feedstock markets," Energy Policy, Elsevier, vol. 39(2), pages 753-760, February.
  • Handle: RePEc:eee:enepol:v:39:y:2011:i:2:p:753-760
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    Cited by:

    1. Serra, Teresa & Gil, José M., 2012. "Biodiesel as a motor fuel price stabilization mechanism," Energy Policy, Elsevier, vol. 50(C), pages 689-698.
    2. da Silveira, Rodrigo Lanna F. & Mattos, Fabio L., 2015. "Price And Volatility Transmission In Livestock And Grain Markets: Examining The Effect Of Increasing Ethanol Production Across Countries," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205684, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    3. Gbadebo Oladosu & Siwa Msangi, 2013. "Biofuel-Food Market Interactions: A Review of Modeling Approaches and Findings," Agriculture, MDPI, Open Access Journal, vol. 3(1), pages 1-19, February.
    4. Ladislav Kristoufek & Karel Janda & David Zilberman, 2013. "Non-linear price transmission between biofuels, fuels and food commodities," Working Papers IES 2013/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2013.
    5. Jeong Hwan Bae, 2014. "Supply Portfolio of Bioethanol in the Republic of Korea," Korean Economic Review, Korean Economic Association, vol. 30, pages 133-161.
    6. Maslyuk, Svetlana & Dharmaratna, Dinusha, 2013. "Renewable Electricity Generation, CO2 Emissions and Economic Growth: Evidence from Middle-Income Countries in Asia /Generación de electricidad renovable, las emisiones de CO2 y crecimiento económico: ," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 31, pages 217-244, Enero.
    7. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    8. Ahmadi, Maryam & Bashiri Behmiri, Niaz & Manera, Matteo, 2016. "How is volatility in commodity markets linked to oil price shocks?," Energy Economics, Elsevier, vol. 59(C), pages 11-23.
    9. Ladislav Kristoufek & Karel Janda & David Zilberman, 2012. "Mutual Responsiveness of Biofuels, Fuels and Food Prices," CAMA Working Papers 2012-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Philip Abbott, 2014. "Biofuels, Binding Constraints, and Agricultural Commodity Price Volatility," NBER Chapters,in: The Economics of Food Price Volatility, pages 91-131 National Bureau of Economic Research, Inc.
    11. Chanthawong, Anuman & Dhakal, Shobhakar & Jongwanich, Juthathip, 2016. "Supply and demand of biofuels in the fuel market of Thailand: Two stage least square and three least square approaches," Energy, Elsevier, vol. 114(C), pages 431-443.
    12. Kong, Minji & Han, Doo Bong & Nayga, Rodolfo M., Jr., 2012. "Interrelationship and Volatility Transmission between Grain and Oil Prices," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124377, Agricultural and Applied Economics Association.
    13. Catherine Hausman & Maximilian Auffhammer & Peter Berck, 2012. "Farm Acreage Shocks and Crop Prices: An SVAR Approach to Understanding the Impacts of Biofuels," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(1), pages 117-136, September.
    14. Philip Abbott, 2013. "Biofuels, Binding Constraints and Agricultural Commodity Price Volatility," NBER Working Papers 18873, National Bureau of Economic Research, Inc.
    15. repec:prg:jnlpol:v:2018:y:2018:i:2:id:1185:p:218-239 is not listed on IDEAS
    16. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.
    17. Pal, Debdatta & Mitra, Subrata K., 2017. "Time-frequency contained co-movement of crude oil and world food prices: A wavelet-based analysis," Energy Economics, Elsevier, vol. 62(C), pages 230-239.
    18. Wang, Yudong & Wu, Chongfeng & Yang, Li, 2014. "Oil price shocks and agricultural commodity prices," Energy Economics, Elsevier, vol. 44(C), pages 22-35.
    19. repec:eee:eneeco:v:70:y:2018:i:c:p:516-524 is not listed on IDEAS
    20. McPhail, Lihong Lu, 2011. "Assessing the impact of US ethanol on fossil fuel markets: A structural VAR approach," Energy Economics, Elsevier, vol. 33(6), pages 1177-1185.

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    Keywords

    Bioethanol Feedstock SVAR;

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