Abstract
We find distiller's dried grains with solubles (DDGS) prices to be positively correlated with both corn and soybean meal prices in the long run. However, neither corn nor soybean meal prices respond to deviations from this long-run relationship. We also identify strong time-varying dynamic conditional correlations between the markets, with the correlation between DDGS and corn strengthened after the expansion of ethanol production. There also appear to exist significant volatility spillovers from both the corn and soybean meal markets to the DDGS market, with the impact from corn shocks much larger compared to soybean meal shocks.
Highlights
IntroductionDDGS are a co-product from dry-mill ethanol productions, high in both energy and protein content
Background and Related LiteratureDDGS are a co-product from dry-mill ethanol productions, high in both energy and protein content
We seek to fill in this literature gap by identifying the price and volatility transmission mechanisms between DDGS, corn, and soybean meal markets
Summary
DDGS are a co-product from dry-mill ethanol productions, high in both energy and protein content. DDGS were used in livestock feeds as a source of protein, often replacing soybean meal in the feed ration. Tightening corn supplies and the increasingly volatile corn prices had led many livestock producers to replace corn in the feed ration with DDGS as an energy source. In a survey conducted by Stroade et al (2010), 87 percent of the ethanol plants used corn futures prices to establish the benchmark prices of distiller’s grains, while 43 percent of the respondents used soybean meal futures prices as a benchmark
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