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Abstract

Since 2002, the Renewable Fuels Standard has established mandated levels of ethanol blending in gasoline. Mandated ethanol use represents an important component of ethanol demand. Thus, the ethanol mandates influence derived demand for corn. This work investigates the potential impact of ethanol mandates on equilibrium corn prices and quantities, focusing on how the mandates influence market participant expectations. Results illustrate that due to the stochastic nature of supply and demand shocks, even a mandate that is technically nonbinding can have a substantial impact on corn prices and quantities through the mandate's impact on the price-responsiveness of demand from the ethanol sector. [JEL classifications: Q13, Q42, Q48]. © 2010 Wiley Periodicals, Inc.