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

Mindy Mallory (), Dermot Hayes and Scott Irwin

Midwest Agribusiness Trade Research and Information Center (MATRIC) Publications (archive only) from Center for Agricultural and Rural Development (CARD) at Iowa State University

Abstract: In this article we use the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explore 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 current spot prices and that a short-term relationship between input and output prices will exist. This short-term relationship will contain fixed costs. We demonstrate validity of the theory using a structural price model and then by means of time-series techniques.

Keywords: arbitrage; cointegration; corn; energy; ethanol; futures; price-analysis; storage. (search for similar items in EconPapers)
Date: 2010-12
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: How market efficiency and the theory of storage link corn and ethanol markets (2012)
Working Paper: How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets (2010)
Working Paper: How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ias:mpaper:10-wp517

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