Waiving Ethanol Mandates Won’t Cut Corn Prices—Much

August 16, 2012 06:06 AM

As the conventional wisdom goes, getting out of any long-term relationship, is well, complicated.

And when it comes to ethanol and its marriage to the Renewable Fuels Standards (RFS), that conventional wisdom applies in spades.

An analysis by Purdue University suggests corn prices would fall just 47¢ to $1.30/bu, depending on the level of RFS waiver and the severity of the drought currently gripping the nation.

"The bottomline: If refineries and blenders have flexibility to reduce ethanol usage in the short term, use of prior blending Renewable Fuel Identification Numbers (RFIN) credits and/or a waiver could reduce corn price around $1.30/but for a large waiver or 47¢/but for a modest waiver," say Wallace Tyner, James and Lois Ackerman, Farzad Taheripour and Chris Hurt, all ag economists with Purdue.

The economists don’t expect the Environmental Protection Agency to offer any waivers for the remainder of 2012, mostly because blenders only need to use another 5.6 billion gallons of ethanol yet this year. And since blenders have already stockpiled some 2.6 billion gallons of RFIN credit, they are required to blend as little as 3 billion gallons yet this year.

"The real question is what happens in 2013, when the ethanol blending obligation increases to 13.8 billion gallons (up 600 million gallons from 2012)," they write.

And that’s when things get complicated. Not only is the RFS waiver in play, but the simple economics of corn and crude oil prices determine whether ethanol plants keep operating. "If the corn price remains in the $8 range and the price of crude oil increases to the area of $120/barrel, waiving part of the RFS would have little impact because ethanol likely would be demanded by the market regardless of the level of the RFS," say these authors.

Things get less clear if crude oil prices remain below $100. In addition, EPA could opt to totally waive the "other advanced" RFS mandate, which is 750 million gallons for 2013. Sugarcane ethanol is included in this category, and could then be credited to the conventional category. Sugarcane ethanol imports would also likely increase.

"The sum of the other advanced mandate plus carry-forward RINs could potentially be about 1.2 billion bushels of corn," say the economists. "That represents about 24% of the effective corn mandate which is roughly the size of the projected corn crop shortfall."

For the full report, click here.


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Spell Check

8/16/2012 04:42 PM

  Using the "Professional Logic" of these college bred theorists , then let's double the ethanol mandate. It obviously wont affect the price of grain anymore than eliminating the mandate. Ethanol mandate is just another failed government program that has resulted in higher gas prices, lower fuel economy , less engine power, higher food prices, higher seed and fertilizer prices, higher feed cost,etc. Worst of all , it's shoved down our throats by politicians at the expense of the U.S. taxpayer. Ethanol is so inefficient, it has to be MANDATED. Sadly, that makes economic sense to Purdue economists.​

8/17/2012 06:11 AM

  City people will never understand what goes on in the country ever, god bless America and the farmers that feed your fat ass.

8/20/2012 07:03 AM

  t"bonehead" you could not be further from wrong, in nearly everything you said. we are seeing a savings at the pump as reaching 87 octane would be much more expensive for refiners without the ability to use ethanol. can't say bout fuel efficiency and power but higher food prices is what has been shoved down your throat by particular groups and/or a misinformed and/or sensational seeking media. i have no clue where you may have come up with higher seed and fertilizer costs. crude price has much more impact on higher food and fertilizer prices than most other factors. ethanol by-products have been a feed source that have actually help off-set feed costs. and you might want to check with other sources that you have used to come up with the inefficeincy of ethanol. in fact you may want to get a whole new set of resources for all your information. the quality of your resources is more important than the quantity of nonsense you can provide.


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