Reforms to US RFS could depress corn prices 6.6%: research
A proposed reform to the US Renewable Fuels Standard, which include a cap on prices in the scheme, could depress corn prices by 25 cents per bushel at a time that the market is reeling from a supply glut, new research has found this week.
A note from the Center for Agricultural and Rural Development at Iowa State University examined the impact of a compromise proposal in Congress to make the RFS less costly to US fuels producers amid a recent bankruptcy at a major east coast refiner.
The proposal being considered by policymakers would allow an ‘RVP waiver’ for fuel containing 15% ethanol, known as E15, to enable sales throughout the year and implement a cap on D6 RIN prices between $0.10 and $0.20 per Renewable Identification Number (RINs).
Currently E15 sales are restricted to the winter months only.
RINs are the credits used in the RFS scheme and are either bought or earned through blending at source.
“A lower bound on the corn price impact from capping RIN prices would occur if ethanol exports completely offset lower domestic blending. In this case, corn prices would remain the same,” the report said.
It added that the biggest impact on corn prices would occur if blending is reduced by around 1 billion gallons, which is the difference between the current 15 billion gallon mandate and the almost 14 billion gallons of blending that could occur if RIN prices aare capped, the report explained.
“Corn prices under this scenario would drop, in the short-run, by around 25 cents/bu,” said Iowa State University, which is an influential provider of analysis to the state’s huge farming and ethanol sectors.
Rival research commissioned by refiners this week contended that a RIN price cap would still enable ethanol producers to generate healthy profits but at the same time reduce some of the cost pressures for companies that have an obligation to blend ethanol into fuel.
Based on current US corn prices of $3.80/bu, a 25 cent/bu fall predicted by the Iowa State University researchers would be equivalent to a 6.6% reduction in the price received by farmers.
Bitter battle
The authors of the report said the proposed RFS compromise of a cap on RIN prices in exchange for an E15 RVP all-year round waiver would have benefits both for those who advocate for a reduction in RFS compliance costs, and for those who want to see expanded sales of high ethanol fuels.
“Whether both sides would benefit from such a deal depends on whether the cap on RIN prices is set high enough to continue to incentivize sales of E15 and E85,” the report said.
Attempts at reforming the RFS have come as President Donald Trump’s administration has tried to broker a compromise between the ethanol and corn lobbies and agree an end to their bitter battle over the future of the scheme.
Letter to Trump
But authorising E15 for use all the year round could not work with the RIN caps favoured by refiners and their main sponsor in Congress, Texas Senator Ted Cruz, said a letter signed by 150 biofuels companies to president Trump on March 7.
"There is no way to cut, cap, or eliminate RINs without cutting, capping, or eliminating gallons of homegrown fuel," the letter added.
"This proposal holds no value if it becomes tied to destructive RIN caps that eliminate market access for biofuels," the biofuels companies said.