Baylis, Katherine R.

Hart, Chad E.

Mallory, Mindy L.

Miller, Elizabeth

English

Research Papers in Economics

Ethanol’s Affect on Basis in the Corn Belt 
Elizabeth Miller1, Mindy Mallory2, Kathy Baylis2 and Chad Hart3 
1. Graduate Student at the University of Illinois; edmiller@illinois.edu 
2. Assistant Professor at the University of Illinois; mallorym@illinois.edu 
3. Assistant Professor at the University of Illinois; baylis@illinois.edu 
4. Assistant Professor at Iowa State University; chart@iastate.edu 
 
 
 
Poster prepared for presentation at the Agricultural & Applied Economics Association’s 2011 AAEA & 
NAREA Joint Annual Meeting, Pittsburgh, Pennsylvania, July 24-26, 2011 
Copyright 2011 by Elizabeth Miller, Mindy Mallory, Kathy Baylis and Chad Hart.  All rights reserved.  
Readers may make verbatim copies of this document for non-commercial purposes by any means, 
provided that this copyright notice appears on all such copies. Ethanol’s Affect on Basis in the Corn Belt 
Elizabeth Miller1, Mindy Mallory2, Kathy Baylis2 and Chad Hart3 
Introduction 
Econometric Model  Description of Data 
Ethanol plants and predicted basis as 
of July, 2005 
Sources 
1. Graduate Student at the University of Illinois; edmiller@illinois.edu      2. Assistant Professor at the University of Illinois      3. Assistant Professor at Iowa State University 
Ethanol plants and predicted basis as 
of September, 2010 
• 1,480 basis observations 
 
• 71 ethanol plants 
 
• Minimum basis:  $-0.72 
 
• Maximum basis: $1.38 
 
• Strongest basis area in Iowa 
and Eastern corn belt states 
 
• Weakest basis area in South 
and West region of corn belt 
• 1,720 basis observations 
 
• 175 ethanol plants 
 
• Minimum: $1.355 
 
• Maximum: $0.705 
 
• Strongest basis in South East of corn 
belt states 
 
• Weakest basis North-West of corn belt 
states 
 
• Central and Northern states relatively 
weaker and South-East states 
relatively stronger than in 2005 
     Ethanol production in the U.S. has increased about 9.9 billion gallons between 
2005 and 2011 (RFA,2011), and as of 2007 the amount of corn used for ethanol 
production surpassed the amount that is exported (Figure A).  Over 100 new 
ethanol plants opened between 2005 and 2010, and corn prices in the top 
producing states jumped (Figure B).   
 
 
 
 
 
 
 
      
      
     As can be seen in the basis maps to the right (2005) and the left (2010), basis 
levels have changed.  As ethanol plants require a lot of corn, it is logical to 
question what affect the new ethanol plants have on local corn price.  Also, the 
closer the source of corn is to the plant, the less transportation costs are incurred, 
and as such, the higher the net price seen by corn producer, which indicates there 
is a spatial relationship between ethanol plant location and capacity and local  
     corn basis. 
      Short Summary: 
• Timeline: July 2005 through September 2010 
• 19 states,  maximum of 3,341 basis locations, including 84 ethanol plants 
• Maximum of 175 ethanol plants, with capacities ranging from 1 to over 400 
million gallons per year 
 
       Variables: 
• Basis from daily elevator prices-daily near-by Future price aggregated to 
monthly 
• Annual corn production by county 
• Monthly ethanol plant capacity and ownership regime 
• Other variables include: transportation cost proxy (diesel price), industrial 
electricity price, population, average industrial wage, average income, water 
availability 
To account for the endogeneity of plant location and capacity decisions, as 
well as for time invariant characteristics of each state, a state level fixed 
effects, two stage least squares model is used.  The first stage is used to 
determine estimated distance weighted draw radius. 
 
First Stage: 
 
Catchmentjt
dij
= α0 + α1Wagejt + α2Electricityjt + α3Incomejt + α4Popjt +
α5Waterjt + α6Statej + α7Ownershipj + ujt 
 
Second stage: 
 
Basisit = βo + β1Rij
Catchmentjt
dij
 
+ β2Ownershipj + β3Transportaionit +
β4Statei + β5Productionit + eit 
 
• i is the elevator indicator, and j is the ethanol plant indicator 
• R is a dummy variable indicating if elevator i is in ethanol plant j’s 
catchment region 
• R is 0 if the ethanol plant is not open 
• Corn cash prices from DTN, My DTN Cash Bids 
• Futures prices come from the Chicago Board of Trade 
• Corn production information comes from USDA-NASS 
• Ethanol plant information comes from the Renewable Fuels Association Annual Industry 
Outlooks from 2005-2010, and the Nebraska Energy Office 
• Diesel prices  and Electricity prices come from EIA 
• Population, wages, income and water availability come from the US Census Bureau 
• Figure A comes from USDA-NASS, found at: 
usda.mannlib.cornell.edu/usda/nass/AgriPric//2010s/2010/AgriPric-12-30- 2010.pdf 
• Figure B comes from USDA-ERS, found at: 
www.ers.usda.gov/Publications/OCE111/OCE111d.pdf 
 
A  B 

Ethanol’s Affect on Basis in the Corn Belt

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