Felipe G. Avileis

Working Papers

Commodity Volatility in the Biofuel Era [FULL PAPER HERE]

Abstract: Agricultural price volatility has significant economic consequences, affecting crop insurance premiums and hedging costs. This paper investigates how biofuel mandates increased corn and soybean oil price volatility through two theoretical mechanisms. Building on portfolio theory principles, I demonstrate that biofuel policies increased price volatility by increasing the weights of energy market demand shocks into agricultural demand portfolios, while simultaneously steepening domestic demand curves through mandated demand. Using implied volatility data between 1996-2024, I exploit fuel use share changes during the Renewable Fuel Standard implementation and expansion, and export displacement in soybean oil markets during the 2021 Renewable Diesel  "boom". Results indicate that corn and soybean oil volatility increased by 29% and 19%, respectively. Corn's main driver was increased fuel shares during the RFS implementation, while soybean oil increases are mostly attributed to steepening of the demand curve during the "boom" period. These findings provide causal estimates of biofuel policy effects on agricultural volatility, revealing distinct mechanisms across commodities with important implications for risk management, crop insurance pricing, and future biofuel policy design.

When Biofuel Policy Speaks (and Leaks): Returns and Pass-Through in the Soybean Complex (w/ Andrew Swanson and Scott Irwin) [first draft coming out soon]

Abstract: How do biofuel policy announcements affect the soybean complex in the US? Using an event study approach, we analyze Environmental Protection Agency (EPA) announcements, Energy Information Administration (EIA) and California Air and Resource Board (CARB) reports, and news ``leaks" from media sources with early information access. We find that soybean oil futures volatility increases significantly, by 1.22% on event days, 85% higher when compared to non-event days. The informational value of these biofuel policy signals is as large as that of major USDA WASDE reports.  We leverage these news shocks to estimate the pass-through of soybean oil returns to the rest of the soybean complex. Our analysis reveals that a 10% biofuel-induced price increase in soybean oil leads to a 2.1% rise in soybean prices and a 1.8% drop in soybean meal prices, increasing crush margins by 1.1%. These results show that the last increase in the RFS, in June 2025, added $1.35 billion in value to US soybean farmers.

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]

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