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Abstract
U.S. biofuel policies established a link between energy and grain commodity markets. Hence, a large portion of the U.S. corn crop is now used to manufacture ethanol for blending in commercial fuels. Livestock producers, especially beef producers, also heavily rely on cheap corn as the primary feed input in production. We develop and estimate a structural model of energy, grain, and beef markets that decomposes the impact of structural shocks on the U.S. beef herd size. Our results show that a positive increase in energy or corn demand has a significant negative effect on the herd size. Moreover, the unintended consequences from this government policy extend to the underlying asset: land values. We develop a theoretical model of agricultural land values that accounts for the simultaneity problem between the determinants of cropland and pastureland. We estimate our reduced form model using a two-stage event study design. We find that the combination of direct and indirect government support for cropland decreased the relative value of pastureland. Following this theme, we analyze how changes in U.S. forest policies and market structure affected the way in which prices transmit between lumber products and standing timber. In particular, we examine how gains in the productive capacity of timberproducers along with increasing inventories on the part of lumber manufacturers impact vertical price transmission in the housing supply chain. We estimate a nonlinear autoregressive distributed lag model of housing to lumber price transmission, using monthly data and controlling for the cost of mortgages and new home inventory. We find that housing price shocks transmit to lumber prices asymmetrically with only positive shocks having a significant effect. Next, we apply the model to lumber and timber quarterly price data, controlling in this case for lumber inventories. We find that shocks to lumber prices, conditioning on inventories, have no significant effect on timber prices in the long-run.