The Effect of Ethanol Production on Coarse Grains: New Price Relationships
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For years, the U.S. price of grain sorghum has been settled as 95% of the price of
corn. Nevertheless, the increasing demand for corn and grain sorghum in ethanol
production might have changed that price relationship. In this study, we use
cointegration and the vector autoregressive model with independent variable
(VARX) to assess the relationship between the spot price of sorghum in several
U.S. markets and corn’s futures market price during the period 1996–2008. The
results indicate a price relationship between the price of sorghum in the Gulf ports,
Kansas City, and Texas, and corn prices of 1.01, 0.99, and 0.99, respectively.
These new relationships are noteworthy for producers and other stakeholders.