Title

How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets Energy Economics

Campus Units

Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

11-2012

Journal or Book Title

Energy Economics

Volume

34

Issue

6

First Page or Article ID Number

2157

Last Page

2166

DOI

10.1016/j.eneco.2012.03.011

Abstract

This article uses the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explores statistical evidence for the link. We propose that a long-run no-profit condition is established in distant futures markets for ethanol, corn and natural gas and then use the theory of storage to define an inter-temporal equilibrium among these prices. The relationship shows that under certain conditions, future price expectations will influence nearby futures prices and that a short-term relationship between input and output prices will exist. We demonstrate validity of the theory using a structural price model and then by means of time-series techniques.

Comments

This is a working paper from Energy Economics, 34(6) November 2012; 2157-2166. Doi: 10.1016/j.eneco.2012.03.011.