The Impact of Ethanol Production on Spatial Grain Market Relationships

Using cointegration theory, grain markets in Michigan, Kansas, Iowa and Indiana were examined to determine if increased ethanol production affected spatial corn price relationships in these states from 1998 through 2008. It was determined that corn prices operated in a stable, long-run equilibrium from 1998 through 2008 and increased ethanol production did not have an effect on this relationship. These findings suggest policy boosting ethanol production has not altered relationships between spatially dispersed corn markets. In addition to policy makers, this information is also useful to farmers and commodity traders who utilize market information when managing their businesses.

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