NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Thomas W. Hertel, Jayson Beckman

NBER Working Paper No. 16824
Issued in February 2011
NBER Program(s):   EEE

Agricultural and energy commodity prices have traditionally exhibited relatively low correlation. However, recent increases in biofuel production have altered the agriculture-energy relationship in a fundamental way. This increase has drawn on corn previously sold to other uses, as well as acreage devoted to other crops. The US RFS envisions a further boost of ethanol production to 15 billion gallons per year, which might be expected to further strengthen the linkages. We estimate that, in the presence of a binding RFS, the inherent volatility in the US coarse grains market will rise by about one-quarter. And the volatility of the US coarse grains price to supply side shocks in that market will rise by nearly one-half.

Under a high oil price scenario, rather than the RFS binding, the binding constraint is likely to be the blend wall. With a binding blend wall, we see similar, although somewhat smaller, increases in market volatility. If both the RFS and the blend wall are on the verge of being binding, then our results suggest that US coarse grains price volatility in response to corn supply shocks would be 57% higher than in the non-binding case, and world price volatility would be boosted by 25%.

download in pdf format
   (246 K)

email paper

This paper is available as PDF (246 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16824

Published: Commodity Price Volatility in the Biofuel Era: An Examination of the Linkage between Energy and Agricultural Markets, Thomas W. Hertel, Jayson Beckman. in The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies, Graff Zivin and Perloff. 2012

Users who downloaded this paper also downloaded these:
Chen, Huang, Khanna, and Onal w16697 Meeting the Mandate for Biofuels: Implications for Land Use, Food and Fuel Prices
Roberts and Schlenker w15921 Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate
Jacks, O'Rourke, and Williamson w14748 Commodity Price Volatility and World Market Integration since 1700
Abbott w18873 Biofuels, Binding Constraints and Agricultural Commodity Price Volatility
Chen, Huang, Khanna, and Onal Meeting the Mandate for Biofuels: Implications for Land Use, Food, and Fuel Prices
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us