The Impact of the Crude Oil Price on the Livestock Sector under a Regime of Integrated Energy and Grain Markets
The study finds that the emergence and expansion of the ethanol sector was associated with a fundamental transformation of the integration of the energy and agricultural sectors. In particular, the correlation structure between crude oil and grain prices increased dramatically, becoming more statistically significant, and with all anomalous signs corrected. Before the ethanol boom, the correlation of the crude oil price and corn was -0.117. It increased to 0.876 in the ethanol boom period. Soymeal correlation increased from 0.182 to 0.909, and distillers dried grains with solubles increased from -0.252 to 0.834. As a result, the energy market is also now impacting the livestock sector through feed costs, which account for more than half of total costs. From a weak correlation of the crude oil price and feed cost of 0.02, correlation increased to 0.89 during the ethanol boom period. Hence, any variability originating from the energy sector will also now have stronger ripple effects in the livestock sector.
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