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Handbook of Bioenergy Economics and Policy pp 55–72Cite as

Price Transmission in the US Ethanol Market

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Part of the book series: Natural Resource Management and Policy ((NRMP,volume 33))

Abstract

We use nonlinear time series models to assess price relationships within the US ethanol industry. Daily ethanol, corn, and crude oil futures prices observed from mid-2005 to mid-2007 are used in the analysis. Our results suggest the existence of an equilibrium relationship between the three prices studied. Only ethanol prices are found to adjust to deviations from this relationship. The evolution of ethanol prices in relation to corn and crude oil prices may have important implications for the long-run competitiveness of the US ethanol industry.

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Notes

  1. 1.

    Corn, ethanol, and oil futures prices are quoted in cents per bushel, dollars per gallon, and dollars per barrel, respectively.

  2. 2.

    It is well established that as a futures contract expiration approaches, futures and cash prices converge. This is corroborated by a high correlation between cash and futures prices. For example, correlation between CBOT ethanol futures prices and Chicago cash ethanol prices is on the order of 0.987 (CME Group, 2007). Hence, the findings of our paper are not expected to differ from the ones that would be obtained if using cash prices.

  3. 3.

    Results are compatible with unit-root Perron test results for the ethanol series pointing towards a break in the price series by the end of April 2006.

  4. 4.

    To preserve space, parameters showing the short-run dynamics of the series are not presented.

  5. 5.

    Since the exponential function implies symmetric adjustments around the threshold parameter, responses to both negative and positive shocks should be identical.

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Acknowledgments

The authors gratefully acknowledge financial support from Instituto Nacional de Investigaciones Agrícolas (INIA) and the European Regional Development Fund (ERDF), Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica (I+D+i), Project Reference Number RTA2009-00013-00-00.

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Authors and Affiliations

  1. Centre de Recerca en Economia i Desenvolupament Agroalimentari (CREDA-UPC-IRTA), Parc Mediterrani de la Tecnologia, Edifici ESAB, C/ Esteve Terrades 8, 08860, Castelldefels, Spain

    Teresa Serra

  2. Department of Agricultural and Resource Economics, University of California, Berkeley, CA, USA

    David Zilberman

  3. Centre de Recerca en Economia i Desenvolupament Agroalimentari (CREDA-UPC-IRTA), Castelldefels, Spain

    José M. Gil

  4. Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, NC, USA

    Barry K. Goodwin

Authors
  1. Teresa Serra
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  2. David Zilberman
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  4. Barry K. Goodwin
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Correspondence to Teresa Serra .

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Editors and Affiliations

  1. Dept. Agricultural & Consumer Economics, University of Illinois, Urbana-Champaign, W. Gregory Dr. 1301, Urbana, 61801, U.S.A.

    Madhu Khanna

  2. ACDIS, University of Illinois, East Armory Ave. 505, Champaign, 61820, U.S.A.

    Jürgen Scheffran

  3. College of Natural Resources, University of California, Berkeley, Giannini Hall 206, Berkeley, 94720-3310, U.S.A.

    David Zilberman

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Serra, T., Zilberman, D., Gil, J.M., Goodwin, B.K. (2010). Price Transmission in the US Ethanol Market. In: Khanna, M., Scheffran, J., Zilberman, D. (eds) Handbook of Bioenergy Economics and Policy. Natural Resource Management and Policy, vol 33. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-0369-3_5

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  • DOI: https://doi.org/10.1007/978-1-4419-0369-3_5

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  • Online ISBN: 978-1-4419-0369-3

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