Impacts of Increased Corn Ethanol Production on Price Asymmetry and Market Linkages in Fed Cattle Markets

This study compares price transmission behaviors between pre‐ and post‐EPA (Energy Policy Act) periods to investigate the impact of increased production of corn ethanol on price transmission behaviors between five regional fed cattle markets in the United States: Colorado, Iowa‐Minnesota, Kansas, Nebraska, and Texas‐Oklahoma. Econometric models used in this study consider potential nonlinearity and asymmetry in price transmissions using threshold autoregression and threshold error correction methods, and generalized impulse response functions. Overall, the surge of corn ethanol production after the EPA enactment appears to lead lower integration and slower price adjustment between markets, particularly between noncorn‐belt and corn‐belt markets. Our analysis also finds strong evidence of the existence of threshold effects and limited evidence of asymmetric price responses in the short and long run for both pre‐ and post‐EPA periods. [EconLit citations: C32, Q13].