| This paper determines the dynamic interaction between prices of corn, soybean, grain sorghum (milo), wheat, feeder cattle and live (fed) cattle by taking into account the surge in corn consumption stemming from the boost of mandated ethanol production. Corn is a major carbohydrate-feed component of livestock, with grain sorghum and wheat serving as close substitutes. Moreover, soybean is an important protein-feed component. Being non-stationary data, a vector autoregressive (VAR) model (Sims, 1980) that includes an ‘error correction’ term is applied to the series; likewise known as a vector error correction (VEC) model (Engel and Granger, 1987 and Johansen, 1989). Two separate periods are estimated. The first considers prices prior to recent ethanol... |
