Authors: Andrea Bastianin – Università di Milano Bicocca and FEEM, Marzio Galeotti – Università di Milano and IEFE-Bocconi, and Matteo Manera – Università di Milano Bicocca and FEEM

In recent years the ethanol industry has experienced a dramatic growth that has raised concerns about possible demand-driven price increases in corn and other crop markets. Our work aims at shading light on this issue by analysing price relations between ethanol, field crops (i.e. corn, soybeans and wheat) and cattle in the state of Nebraska, the second largest ethanol producer in the United States.

We present two sets of results; first, we investigate whether ethanol can be interpreted as the main force shaping the price dynamics of field crops and cattle in the long-run, or vice versa. Second, we analyse Granger causality linkages between ethanol, field crops and cattle; the empirical question we try to answer is whether the information embedded in ethanol prices can be fruitfully exploited to forecast the prices of field crops and cattle, or vice versa. Given that the objectives of forecasts users might be heterogeneous (e.g. while forecasts of the mean, namely the centre of the distribution, are usually the main focus of policy makers, risk managers are often more interested to anticipate extreme price movements, that is the tails of the distribution), we predict the entire distribution of returns.

Our results show that ethanol does not drive the prices of the other commodities; on the contrary, we provide empirical evidence indicating that there is a stable long-run relationship running from the price of corn to that of ethanol. Moreover, we show that both the centre and the left tail of the ethanol returns distribution can predicted by using field crops; lastly, density forecasts for field crops and cattle do not improve when lagged returns on ethanol are used as explanatory variables.


This seminar has been jointly organized by FEEM and IEFE, Bocconi University.