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Commodity Price Volatility in the Biofuel Era: An Examination of the Linkage between Energy and Agricultural Markets

In: The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies

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  • Thomas W. Hertel
  • Jayson Beckman

Abstract

Agricultural and energy commodity prices have traditionally exhibited relatively low - even negative correlation. However, the recent increases in biofuel production have altered the agriculture-energy relationship in a fundamental way. The amount of corn utilized for ethanol production in the US has increased from 5% in 2001 to over one-third by the end of the decade. This increase has drawn corn previously sold to other uses (exports, food, feed), as well as acreage devoted to other crops (e.g., oilseeds and other grains). In addition, there has been an increase in the demand for production inputs, especially fertilizers, which are heavily energy-intensive. In short, the previous "biofuel decade" has led to significant changes in the US, and indeed the global economy.
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Suggested Citation

  • Thomas W. Hertel & Jayson Beckman, 2011. "Commodity Price Volatility in the Biofuel Era: An Examination of the Linkage between Energy and Agricultural Markets," NBER Chapters,in: The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies, pages 189-221 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:12113
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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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