The Impression of Corn: Ethanol Policy's Effect on America's Largest Commodity
thesisposted on 2020-05-14, 00:00 authored by Luke Byers
Corn is the largest and most widely produced agricultural commodity in the United States. What many people do not realize, though, is that there is an entrenched connection between the everyday practice of filling up one's automobile with gasoline and the price trend of this economic giant. That connection is through ethanol. This study is observing several policy changes on ethanol production incentives instituted by the United States between 1978 and 2011. These observations are then applied to economic and econometric models in which the projected changes deduced per economic theory are tested against the statistical changes that occurred in the market for corn between 1970 and 2018. The two forms of policy of special focus are an ethanol tax credit, effectuated between 1978 and 2011, and an ethanol proportion mandate, enacted in 2005 and still in effect. Economic theory suggests that the tax credit will create multiple effects through an inward consumer demand shock in the retail fuel market and an outward producer derived demand shock, while a mandate will prompt a uniform corn price increase. A regression model was employed to explain the time series data, and the results validated the economic theory: the tax credit was correlated with opposing price-moving forces between supply and demand, and the mandate was correlated an overall price increase. These focused results were found to be statistically significant.