FAPRI: RFS Ethanol Mandate Waiver Could Impact 2013-14 Corn Price More Than 2012-13

October 5, 2012 12:38 AM
 

via a special arrangement with Informa Economics, Inc.

Analysis done by FAPRI sees varying but not overwhelmingly negative corn price impacts from waiver


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


The impact to U.S. corn prices under a waiver of ethanol mandates under the Renewable Fuels Standard (RFS) could be greater in 2013/14 than in 2012/13, but none of the impacts are overwhelming negative, and in some cases result in higher projected prices compared to the baseline, according to analysts of the situation by the Food and Agricultural Policy Research Institute (FAPRI). Link to full report.

FAPRI conducted the analysis at the request of the USDA Office of the Chief Economist and found:

  • Reducing the overall RFS has a small negative effect on the corn price in 2012/13 relative to the baseline because overall ethanol use and production are projected to be motivated mostly by crop and fuel market conditions in the current marketing year, not the RFS. Waiving the mandate, a minimum use requirement, has limited market impact if people were going to use almost as much as the mandate anyway.
  • A waiver in 2012/13 may have larger negative impacts on corn market prices in 2013/14 than in 2012/13. Extra biofuel use in one year typically can help to meet the next year’s mandate. If this practice is permitted, a waiver in 2012/13 could make it far easier to satisfy the RFS in 2013/14, when limits on E10 blending make mandate compliance difficult. If the waiver also disallows counting biofuel use in 2012/13 against the mandate in the next year, then the mandate might be more difficult to meet in 2013/14. In this case, corn prices in the year after the waiver would be higher than in the baseline.
  • Waiving the advanced mandate reduces sugar cane ethanol imports, leading to more corn starch ethanol production and a higher corn price in 2012/13.
  • Generally, mandate changes can have partly offsetting ethanol trade impacts. Reducing domestic use of corn starch ethanol tends to cause more exports. Reducing imported advanced ethanol tends to cause less exports.

 

The FAPRI baseline assumes a 2012/13 corn price of $7.87 per bushel and a 2013/14 corn price of $5.32 per bushel.

The scenarios examined included waiving the mandate, waiving the mandate with and without allowing 2012/13 ethanol production to meet 2013/14 mandates, and to wave the advanced ethanol mandate.

Under the conventional gap scenario, FAPRI assumes the 2012/13 corn price would be 4 cents lower while the 2013/14 price would be 17 cents lower than the baseline.

If no carryover of ethanol production from 2012/13 to 2013/14 is allowed, they see an impact of a 6-cent lower corn price for each marketing year.

If the advanced gap is the only waiver, then the corn price in 2012/13 would be $7.96 and $5.23 in 2013/14, but if the overall and advanced gap took place, the 2012/13 price would be $7.93 and 2013/14 would be $5.14.


Comments: There are clearly several variables that come into play as evidenced in the full document linked above. But their bottom line still appears to be that desired impact of lowering corn prices for livestock producers may well not be met or at least may not be to the degree that those requesting the waivers would like to see. 


 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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