Trump plan on ethanol could hurt corn prices — study

Source: Marc Heller, E&E News reporter • Posted: Thursday, March 8, 2018

A potential compromise on ethanol mandates floated by the Trump administration would reduce demand for biofuels and could cause already low corn prices to slide further, researchers at Iowa State University said.

In a study, researchers at Iowa State’s Center for Agricultural and Rural Development said capping prices for renewable fuel credits while allowing year-round sales of higher-ethanol fuel could trim the effective annual ethanol mandate from 15 billion gallons to 14.3 billion gallons this year.

In addition, they said, unless the United States boosts corn exports, prices for that grain would fall by as much as 25 cents per bushel. Prices have been around $3.80 per bushel recently, which is close to or slightly below the expected break-even point this year, according to the Department of Agricultural and Consumer Economics at the University of Illinois.

The Iowa State study said capping price of renewable fuel credits, also called Renewable Identification Numbers, would throw off the market for E15 fuel even if U.S. EPA starts allowing its sale in summer.

That’s because E15 has slightly lower fuel efficiency, and RIN prices need to stay at a certain level to overcome the lower efficiency. That level could be around 50 cents each, they said, which is considerably higher than the 10 cents the administration has discussed.

E15 fuel is 15 percent ethanol. Gasoline sold now is typically 10 percent ethanol. Refineries that don’t blend ethanol into gasoline buy RINs from other companies in order to show compliance with the federal renewable fuel standard.

The administration has latched on to the idea of limiting RIN prices, possibly through a cap or a “waiver credit,” according to industry groups close to the discussions. The waiver credit would allow refiners to buy credits from the government and amounts to a cap in practice, sources said.

Sen. Ted Cruz (R-Texas) has led the calls in Congress for the concept.

Ethanol advocates have lined up against caps or waiver credits on RINs. The Renewable Fuels Association yesterday pointed to the study as evidence that the potential compromise would be “a bad deal for rural America and the nation’s consumers.”

“Here’s the bottom line: A RINs price cap would be a lose-lose scenario for America’s farmers and consumers, not the win-win Sen. Cruz has promised,” said RFS CEO Bob Dinneen in a statement.

The study, by Gabriel Lade, Sébastien Pouliot and Bruce Babcock, said researchers don’t have a crystal-clear picture of E15 markets, given the fuel’s limited availability. Retailers who haven’t offered it would likely start doing so if the seasonal restriction were lifted, they said, but only if RIN prices were high enough to make it attractive.

Iowa leads the nation in ethanol production.

The paper’s release comes as meetings among ethanol and petroleum interests, as well as senators interested in the issue, continue with President Trump and administration officials (E&E Daily, March 2).

A lobbying campaign by both sides has intensified in recent weeks. Union workers from the Philadelphia Energy Solutions refinery in Pennsylvania have urged action on RINs, citing the company’s assertion that high renewable fuel credit costs are behind its recent bankruptcy filing.

“Although the multibillion-dollar ethanol industry and its powerful lobbyists are determined to prove otherwise, our laws are not intended to guarantee profits for RIN traders,” said Kim Nibarger, national oil bargaining chairman for the United Steel Workers.

Today, workers from biofuel plants responded in kind, telling Trump in a letter, “There is no way to cut, cap, or eliminate RINs without cutting, capping, or eliminating gallons of homegrown fuel. These gimmicks would eliminate market access for higher ethanol blends, and they are deal-killers for rural America.”