The Energy Independence and Security Act (EISA) of 2007 states an increase in ethanol production to 36 billion gallons per year by 2022. Biofuels mainly are produced from agricultural commodities, so that increasing demand of biofuels would have an impact on agricultural commodity prices. The linear relationships between crude oil prices and prices for agricultural commodities are well documented, but not appropriate to explain the asymmetric dependency. Vine copula modeling which is used in this study can extend to higher dimensions easily and provide a flexible measurement to capture an asymmetric dependence among commodities. The purpose of this study is to analyze the degree and the dependence structure of commodities with the policy effect of EISA 2007 along the biofuel supply chain in the United States agricultural market. We employ vine copulas in order to better capture an asymmetric dependence among commodities using six U.S. agricultural commodities’ and crude oil. The empirical results provide that vine Copula-based ARMA-EGARCH (1,1) is an appropriate model with the skewed Student t innovations to analyze returns dependency of crude oil and agricultural commodities before EISA 2007 (January 1st, 2003- January 17th, 2007) and after EISA 2007 (January 18th, 2007-December 31st, 2012). Our findings on the relationship among agricultural commodities can provide policymakers and industry participants appropriate strategies for risk management, hedging strategies, and asset pricing.


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