Drought, ethanol, and livestock

- In 2012 livestock producers sought a waiver to RFS biofuel mandates.
- Evidence from a VECM indicates that it was prudent for the EPA to reject a RFS waiver.
- Results indicate that relaxing the RFS biofuel mandate would have minimal impact.
- The underlying economic relation of sister markets should be understood for policy analysis.

The 2012 drought in the U.S. Midwest resulted in volatile crop prices. With field crops constituting a major input in livestock production, livestock producers sought a waiver to Renewable Fuel Standard biofuel mandates. They believed such a waiver would mitigate crop-price volatility; given crops are major inputs in biofuel production. The U.S. Environmental Protection Agency (EPA) denied the waiver under the belief that the waiver would have minimal if any impact on mitigating price volatility. Employing a VECM, the objective is to investigate if it was prudent for the EPA to reject the waiver. Results generally support EPA's conclusion that the waiver relaxing the biofuel mandate would have minimal impact.