Increase in corn ethanol production in Brazil: Examining changes in dynamic interconnectedness

RESEARCH ARTICLE

Daniel Henrique Dario Capitani, Luiz Eduardo Gaio, Fabio L. Mattos, Rodrigo Lanna Franco da Silveira, José César Cruz Junior | Renewable Energy

Brazil is a major producer of ethanol in the world. Traditionally, this type of production is derived from sugarcane. However, in recent years, the increase in corn production in the country has directed part of this surplus toward corn-based ethanol. This movement has changed biofuel production dynamics to new areas in the country's Center-West, where grain production is dominant. Therefore, this study examines the dynamic connectedness between regional ethanol and corn prices in Brazil. A TVP-VAR model was applied, considering the specifications proposed by Antonakakis et al. (2020). First, we examined the transmission between the major sugarcane-based ethanol region in the southeast and the new corn-based ethanol region in the Center-West. Second, we examined the regional interconnectedness between ethanol and corn in the Center-West production spots. DCC-GARCH and wavelet coherence analysis were also applied to complement the regional analysis. The results indicate an increase in ethanol volatility connectedness between producing states after the corn-based ethanol outbreak in 2019/20. At the regional level, our findings suggest a slight increase in the connection between ethanol and corn prices, especially in the state of Mato Grosso, where significant co-movements were observed in the recent period. These findings are important to show that the new ethanol feedstock in Brazil can potentially affect ethanol price volatility dynamics at the country level as well as the contagion between corn and ethanol at the regional level.

Full article: https://doi.org/10.1016/j.renene.2026.126323