Multifractal dynamics of Brazilian corn and ethanol markets
Daniel Henrique Dario Capitani, Luiz Eduardo GaioPurpose
This study examines whether the recent expansion of corn-based ethanol production in Brazil has altered the local cross-correlation dynamics between corn and ethanol prices.
Design/methodology/approach
Weekly prices of hydrated ethanol and spot corn markets covering the 2015/16–2024/25 crop years were analyzed. The sample was divided into pre- and post-expansion periods to evaluate the changes associated with the growth of corn-based ethanol production. The analysis employs Multifractal Detrended Fluctuation Cross-Correlation Analysis (MF-X-DFA) to capture persistence and multifractal properties across different fluctuation regimes.
Findings
The results indicate persistent long-term cross-correlations between corn and ethanol prices. However, the effects of the expansion of corn-based ethanol production are heterogeneous and vary by region. More pronounced integration was observed in Mato Grosso, where the cross-correlations became more homogeneous and persistent. At the state level, ethanol markets exhibited stronger multifractal dynamics in the post-expansion period, suggesting an increase in the complexity of domestic ethanol price formation.
Research limitations/implications
The analysis is limited by the availability of ethanol price data in some producing regions and a relatively short post-expansion period.
Practical implications
These findings suggest that market participants may need to adapt risk management strategies to increasingly complex and region-specific price interactions, while policymakers should account for regional heterogeneity in designing biofuel and agricultural market policies.
Originality/value
This study provides the first multifractal cross-correlation analysis of regional corn and ethanol markets in Brazil, offering new evidence on how the expansion of corn-based ethanol production affects price dynamics in the emerging biofuel economy.