Abstract
AbstractThe biofuels era brought about changes to the energy and agricultural sectors. For example, the decrease in natural gas prices has led to a weakening of the relationship between fertilizer and gas prices. The other change has been an increase in the demand for fertilizers, which has strengthened the price relationship between these two products. Econometric evidence from this work indicates that after 2008 the relationship between fertilizers and corn prices increased. In addition, results from our work indicate the presence of market power in the ammonia fertilizer sector.
Highlights
Higher energy prices and increased biofuel production over the past decade have substantially impacted the agricultural sector, especially through higher and more volatile prices
We begin with testing for structural change and unit roots in the data because not properly dealing with these statistical issues could confound our econometric results
The results indicate the presence of a structural break occurring in June 2008; this information, plus the suggestion of a structural break in 2008 from Figures 1 and 2, leads us to split the data into pre-2008 and post-2008 components. What might explain this structural break in prices? For the natural gas/fertilizer price relationship, the Bureau of Labor Statistics (BLS) (2013) notes that there was a 25% increase in natural gas production in the United States from 2007 to 2012, which led to the large decline in natural gas prices (Figure 1)
Summary
Higher energy prices and increased biofuel production over the past decade have substantially impacted the agricultural sector, especially through higher and more volatile prices. Agricultural input price changes have been volatile over the past decade, they have received much less attention. These inputs are no less important, especially fertilizers, which have become a necessary and vital input for crop production.. The impacts of higher input prices are felt, in particular, when the input has few substitutes or is necessary for production. The two agricultural production inputs that have experienced the largest and most volatile price changes during the biofuels era, fertilizers and fuels, have very few substitutes (Beckman, Borchers, and Jones, 2013). Whereas increasing fuel prices can be linked to higher oil prices, the price of the main input for fertilizers (natural gas) has declined overall during the past decade
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