Dr. Henry An, Dept. of Resource Economics and Environmental Sociology, University of Alberta will present a seminar titled "The Effect of a Binding Blend Wall on Price Volatility and Spillovers in Food and Fuel Markets".
Posted on Thursday, November 30, 2017
Date: Tuesday, December 5, 2017
Time: 2:30-4:00 pm
Room: MCLN 107
The tremendous growth in the production of biofuels in the past decade has led many researchers to examine the relationship between food and biofuel markets. Two recent events have highlighted the need for additional analysis: agricultural commodity prices reached record levels of volatility in 2010/11, and ethanol production ran into the blend wall in November 2013. We investigate the effect of these developments on the relationship between the corn, ethanol and crude oil markets using a dataset of prices that spans the periods before and after the blend wall became binding. First, we empirically investigate the nature of price volatility in the ethanol, corn and crude oil markets. Second, we examine the price volatility relationship between these three markets by focusing on the extent to which – if any – price volatility in one market spills over to the other market. Lastly, we examine the interdependence of the three markets before and after the binding blend wall. We find similar results to existing studies regarding the nature of volatility spillovers between the corn and crude oil markets. The key result of this paper is that the relationship between ethanol and corn and ethanol and crude oil greatly diminishes post 2013, which we attribute to a binding blend wall.