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Drivers of Commodity Volatility in the Biofuel Era

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  • Grimaldi Avileis, Felipe

Abstract

This paper investigates how the increased use of corn and soybean oil as motor fuel feed-stock, driven by biofuel mandates, has affected price volatility. I model and study two different volatility drivers affected by the mandates: market integration and changes in the demand curve. Using the implementation of the Renewable Fuel Standard and the Renewable Diesel boom as key events, I measure the effects of these two drivers on implied volatilities using causal inference methods and a novel set of synthetic controls. Results indicate a 19% rise in corn volatility and a 18% increase in soy bean oil volatility, on average, after the implementation and expansion of biofuel mandates. In the case of corn, the higher shares of corn used for fuel and a high volatility regime in energy markets are the drivers of volatility changes. For soybean oil, the increase is mostly driven by changes in marginal demand elasticity, as growing domestic demand led to the cessation of exports.

Suggested Citation

  • Grimaldi Avileis, Felipe, 2025. "Drivers of Commodity Volatility in the Biofuel Era," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360644, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea25:360644
    DOI: 10.22004/ag.econ.360644
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