October 05, 2012
RFS waiver would have little immediate impact on corn, ethanol—study
Published in E & E
A one-year waiver of the corn ethanol requirements in the renewable fuel standard will not have much impact on corn prices or corn use for ethanol this year, according to a new study by a Missouri research institute.
Such a waiver has been requested by several livestock-state governors and could have a larger effect in the following year, reducing corn use for ethanol by 6.6 percent and corn prices by 3 percent, the study found. This year, though, ethanol use would drop 1.3 percent and corn prices by 0.5 percent with a waiver.
The study was released yesterday by the Food and Agricultural Policy Research Institute, a research arm at the University of Missouri.
The change in ethanol use and corn price this year would be small because it is driven "mostly by crop and fuel market conditions in the current marketing year, not the RFS," the study said. "Waiving the mandate, a minimum-use requirement has limited market impact if people were going to use almost as much as the mandate anyway."
The study by FAPRI said E10, or gasoline blended with 10 percent ethanol, is widespread enough that it is economically attractive for refiners to keep producing it in the short term, regardless of a waiver. The changes would be greater the next market year starting Sept. 13, 2013, causing corn prices to drop by 17 cents per bushel.
The lower corn prices would result in lower costs for livestock producers unless the prices of other feed components rose.
The results, though, depend on how U.S. EPA would handle fuel credits, which refiners can buy and sell to satisfy their obligations under the renewable fuel standard.
If EPA were to allow the credits to be generated during the waiver, ethanol production and corn prices would see that greater decrease during the 2013-2014 marketing year. If, however, EPA were to stop credits from being created during the waiver period, corn use for ethanol could increase by 1.6 percent that year, leading to higher corn prices.
"We are not certain how rollover would be handled in the event [of] a waiver, however, and this appears to be a key factor determining the impact on the year after the waiver," the authors of the FAPRI study wrote.
Next week, EPA will close its comment period on the waiver requests, which the governors say should be granted to reduce the price of corn-based animal feed for livestock producers.
Pork producers are "simply unable to compete with local ethanol plants that enjoy the benefit of a federal mandate under the RFS that not only subsidizes the ability of an ethanol plant to outbid local competition for the purchase of limited supplies of local corn, but then also guarantees a market for the ultimate sale of that ethanol," the Missouri Pork Association said in a comment submitted to EPA.
The ethanol industry touted the report today and said it was the latest analysis showing a one-year waiver would not provide livestock producers with the relief they are seeking.
"The suggestion that an RFS waiver would significantly bring down feed prices and reduce retail meat prices is absolutely absurd," said Bob Dinneen, president and CEO of the Renewable Fuels Association. "The only real impacts of a waiver would be to discourage farmers from planting corn next spring and to interrupt and delay important investments in new feedstocks and advanced biofuels technologies."
EPA is not expected to come to a decision until November or at least 90 days after the original requests.