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The impact of biofuels policy on agribusiness stock prices

Author

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

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, whereas 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 had a structural change in November 2006, consistent with the expansion of U.S. biofuels policy support. A linear two-factor (S&P 500 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. [EconLit citations: D43; L13; Q14]. (C) 2010 Wiley Periodicals, Inc.

Suggested Citation

  • Fatma Sine Tepe & Xiaodong Du & David A. Hennessy, 2011. "The impact of biofuels policy on agribusiness stock prices," Agribusiness, John Wiley & Sons, Ltd., vol. 27(2), pages 179-192, Spring.
    • Handle: RePEc:wly:agribz:v:27:y:2011:i:2:p:179-192
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    File URL: http://hdl.handle.net/10.1002/agr.20265
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    Cited by:

    1. Baines, Joseph, 2015. "Fuel, Feed and the Corporate Restructuring of the Food Regime," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 42(2), pages 295-321.
    2. Brandon Schaufele & David Sparling, 2011. "Regulation and the financial performance of Canadian agribusinesses," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(2), pages 201-217, August.
    3. Baines, Joseph, 2015. "Price and Income Dynamics in the Agri-Food System: A Disaggregate Perspective," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 157992, October.
    4. Khalfaoui Rabeh, K & Boutahar Mohamed, B, 2011. "A time-scale analysis of systematic risk: wavelet-based approach," MPRA Paper 31938, University Library of Munich, Germany.
    5. Baines, Joseph, 2014. "The Ethanol Boom and the Restructuring of the Food Regime," Working Papers on Capital as Power 2014/03, Capital As Power - Toward a New Cosmology of Capitalism.
    6. Valdes, Rodrigo, 2017. "What drives the regional integration of agribusiness stocks? Evidence in worldwide perspective," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258265, Agricultural and Applied Economics Association.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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