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Price Discovery and Risk Management in the U.S. Distiller’s Grain Markets

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  • Etienne, Xiaoli L.
  • Hoffman, Linwood A.

Abstract

In this paper, we evaluate the spatial nature of the price discovery process in regional distiller’s grain markets in the US and the price relationships among distiller’s grains, corn, and soybean meals since the beginning of the biofuel boom. We use multivariate and pairwise cointegration analyses to examine spatial integrations among regions and to investigate whether a stable long-term price relationship exists in the market. Error correction models are estimated to determine the speed of price adjustment to the long-run spatial equilibrium in the distiller’s grain market. Furthermore, Directed Acyclic Graphs are used to determine the contemporaneous causal patterns of prices observed at different regions. We also conduct cointegration analyses to investigate the long-run relationships between corn, soybean meal, and distiller’s grain prices. Overall, results suggest that with a few exceptions, the distiller’s grain market in the US market is well-integrated for the ten locations considered. It also appears that while there appears to be no long-run relationship between corn, soybean meal, and distiller’s grain prices prior to 2007, a much stronger link between them has been established since then, in parallel with the expansion of ethanol production and the maturity of DDGS markets.

Suggested Citation

  • Etienne, Xiaoli L. & Hoffman, Linwood A., 2015. "Price Discovery and Risk Management in the U.S. Distiller’s Grain Markets," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205125, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205125
    DOI: 10.22004/ag.econ.205125
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    References listed on IDEAS

    as
    1. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
    2. Michael S. Haigh & David A. Bessler, 2004. "Causality and Price Discovery: An Application of Directed Acyclic Graphs," The Journal of Business, University of Chicago Press, vol. 77(4), pages 1099-1121, October.
    3. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
    4. Zijun Wang & David A. Bessler, 2006. "Price and quantity endogeneity in demand analysis: evidence from directed acyclic graphs," Agricultural Economics, International Association of Agricultural Economists, vol. 34(1), pages 87-95, January.
    5. Bessler, David A. & Yang, Jian, 2003. "The structure of interdependence in international stock markets," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 261-287, April.
    6. Plato, Gerald E. & Hoffman, Linwood A., 2007. "Measuring the Influence of Commodity Fund Trading on Soybean Price Discovery," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37568, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    7. Stewart Skinner & Alfons Weersink & Cornelius F. deLange, 2012. "Impact of Dried Distillers Grains with Solubles (DDGS) on Ration and Fertilizer Costs of Swine Farmers," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 60(3), pages 335-356, September.
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