Felipe G. Avileis

Working Papers

Commodity Volatility in the Biofuel Era [FULL PAPER HERE]

Abstract: How do biofuel mandates affect agricultural commodity price volatility? Using variation from the Renewable Fuel Standard and the Renewable Diesel boom, I find that biofuel policies increased corn price volatility by 23% and soybean oil price volatility by 18% through two distinct mechanisms. First, mandates rebalanced demand portfolios by increasing the share of agricultural commodities used for fuel production and by strengthening the transmission of energy market shocks to agricultural markets. Second, mandates steepened domestic demand curves, amplifying price responses to supply shocks. Increased agricultural price volatility has significant economic consequences, increasing crop insurance premiums and hedging costs, imposing additional costs to farmers and the US government. These findings reveal an unintended cost of biofuel policies and demonstrate how these policies can fundamentally change commodity risk profiles.

When Biofuel Policy Speaks (and Leaks): Returns and Pass-Through in the Soybean Complex (w/ Andrew Swanson and Scott Irwin) [FULL PAPER HERE]

Abstract: US biofuel policy plays a key role in shaping price discovery and market fundamentals in the soybean complex. Unlike the confidential and scheduled release of agricultural reports such as the WASDE, biofuel policy announcements are often unscheduled and commonly leak to the media prior to their official release, creating a unique information environment. Using an event study approach, we analyze how biofuel reports from the Environmental Protection Agency, other state and federal agencies, and biofuel policy ``leaks" from media sources impact soybean oil price returns and pass-through to soybeans and soybean meal. We find that soybean oil absolute returns increase by 62% on event days, an effect as large as that of major USDA WASDE reports. We also leverage these news events to identify and estimate pass-through effects of soybean oil biofuel demand shocks throughout the soybean complex. From a $0.05/lb increase in the price of soybean oil, 48% passes through to soybean farmers, 27% passes through to meal buyers, and the remaining 25\% is captured by soybean crushers. These findings highlight how biofuel policy events create a complex price discovery process and redistribute billions of dollars of value across the soybean complex, creating important implications for policy design and implementation. 

Local Policies, Global Markets: The effects of biofuel mandates on international agricultural trade and land use [first draft coming out soon]

Abstract: US biofuel policies aim at supporting the domestic farm sector, increasing US energy independence, and reducing emissions. However, since the implementation of the Renewable Fuel Standard, US net exports of vegetable oils, a key input for biofuel production, have deteriorated by 600%, mainly driven by surges in imports. This paper examines whether regulatory guardrails successfully contain policy effects domestically or enable international spillovers through global markets. Leveraging policy-driven shocks to biofuel credit prices and employing panel local projections across 11 countries and 21 US states, I estimate that a 10% increase in credit prices increases US oilseed acreage by 1%, but also increases foreign acreage by 0.6%. This is over 500,000 acres in Brazil alone. US net exports of vegetable oil deteriorate, driven by a 4% increase in imports. These findings reveal inefficiencies in achieving the intended farmer support and trade policy outcomes of biofuel policies. 

The "Real" Cost of Brazilian Currency Volatility for US Soybean Farmers (w/ Leonard Twizeyimana) [first draft coming out soon]

Policy Giveth and Policy Taketh Away: Estimating Market Integration Parameters for Renewable Diesel Feedstocks (w/ Andrew Swanson, Shawn Arita, Matt Gammans, Jeff O'hara)  [first draft coming out soon]

Published Work

The impact of Brazil on global grain dynamics: A study on cross-market volatility spillovers (w/ Mindy Mallory) [full text here]

Published at Agricultural Economics (January, 2022)

Abstract: Brazil’s rise as a global powerhouse producer of soybeans and corn over the past 15 years has fundamentally changed global markets in these commodities. Brazil’s rise is arguably due to the development of varieties of soybean and corn adapted to climates within Brazil, allowing farmers to double-crop corn after soybeans in the same year. Corn and soybean market participants increasingly look to Brazil for fundamental price information, and studies have shown that the two markets have become cointegrated. However little is known about how much volatility from each market spills over to the other. In this article, we measure volatility spillover ratios between U.S. and Brazilian first crop corn, second-crop corn, and soybeans. We find that linkages between the two countries increased after double-cropping corn after soybeans expanded, volatility spillover magnitudes expanded, and the direction of volatility spillovers flipped from U.S. volatility spilling over to Brazil before double cropping, to Brazil spilling over to U.S. after double cropping.

Other Publications

The California Low Carbon Fuel Standard and Its Consequences (w/ Colin Carter, Jens Hilscher, Andrew Swanson and Aaron Smith) [full text here]

Published at ARE Update - May/June 2024

How the California Low Carbon Fuel Standard Resulted in a Renewable Diesel Boom (w/ Colin Carter and Jens Hilscher)  [full text here]

Published at ARE Update - May/June 2024

California’s proposed cap on crop-based biofuels and what it means for credit prices and producers (w/ Andrew Swanson) [full text here]

Published at ARE Update -  November/December 2024

The chilling effects of cold snaps on futures, options and risk management costs (w/ Jens Hilscher) [full text here]

Published at ARE Update - January/ February 2025