Structural Break and Causal Analyses of U.S. Corn Use for Ethanol and Other Corn Market Variables

Gbadebo A Oladosu,Johannes W A Langeveld,Keith L Kline

doi:10.3390/agriculture11030267

Abstract

The causal basis for many of the relationships in models used to estimate the indirect effects of U.S. biofuels on global agricultural markets has not been adequately established. This paper addresses this gap by examining causal interactions among corn market variables through which the indirect effects of U.S. corn use for ethanol would be transmitted. Specifically, structural break and causal analyses of U.S. corn supply, uses, trade, and price are performed using quarterly data for marketing years 1986 to 2017. The structural break analysis identifies three breaks in corn use for ethanol that reflect the policy-driven evolution of U.S. corn ethanol production and other market factors. The causality analysis finds that U.S. corn use for ethanol is not a driver of the corn price and net corn exports. Changes in corn supply and domestic corn use are found to be the key factors in accommodating the large increase in corn use for ethanol between 2003 and 2010. These results mean that common assumptions linking U.S. corn ethanol production to large reductions in corn availability and exports, and higher global corn prices merit reconsideration.

Highlights

As the world’s largest producer and exporter of corn, the potential agricultural market impacts of U.S conventional biofuels, corn ethanol, continue to be the subject of intense debate
The debate resulted from early appraisals suggesting that U.S biofuel mandates would lead to diversion of corn from export markets to domestic ethanol production, which in turn would lead to large increases in global food prices and increase deforestation in other countries [1]
Corn use for ethanol is found to be a positive driver of total corn supply, which in turn is a positive driver for all domestic corn uses and exports

Summary

Introduction

As the world’s largest producer and exporter of corn, the potential agricultural market impacts of U.S conventional biofuels, corn ethanol, continue to be the subject of intense debate. The debate resulted from early appraisals suggesting that U.S biofuel mandates would lead to diversion of corn from export markets to domestic ethanol production, which in turn would lead to large increases in global food prices and increase deforestation in other countries [1]. The indirect effects of biofuels are usually estimated by partitioning changes in relevant observable variables into biofuel and non-biofuel components using a variety of economic and bio-physical models. These estimates rest on the crucial assumption that modeled relationships between observable variables and indirect effects of biofuels reflect causal pathways [9]

Methods

Results

Discussion

Conclusion