Market Analysis of Ethanol Capacity

The ethanol industry experienced rapid growth and capacity expansion during the mid-2000s. The fast expansion could result from the high industry profitability in 2005 and 2006. The present study applies the real options approach to analyze the U.S. corn ethanol industry and derive the optimal industry manufacturing capacities during 1999 and 2010. The optimal capacity is dependent on various parameters such as market uncertainty, processing margin, marginal variable cost, and incremental investment cost. The major finding is that the industry-wide capacity expansions occurred in 2007 and 2008 might not have been recommended by the real options model. Driven by the potential high market profitability, the industry might have been expanded to a level higher than optimal.


Editor(s):
IFAMR, IFAMA
Issue Date:
Feb 01 2014
Publication Type:
Journal Article
DOI and Other Identifiers:
The IFAMR (ISSN #: 1559-2448) is published quarterly. http://www.ifama.org. (Other)
Record Identifier:
http://ageconsearch.umn.edu/record/163355
PURL Identifier:
http://purl.umn.edu/163355
Published in:
International Food and Agribusiness Management Review, 17, 1
Page range:
83-94
Total Pages:
12
JEL Codes:
Q10; Q14; Q42
Note:
The International Food and Agribusiness Management Review is the published by IFAMA. www.ifama.org
Series Statement:
Volume 17
Issue 1




 Record created 2017-04-01, last modified 2018-11-28

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