DROUGHT, CORN SUPPLY, AND ETHANOL
Published: Wed. Jul 11th, 2012
Boy, all it takes to make corn farmers the stars of the six o’clock news is a drought. And boy, what a drought we’re experiencing. As you talk with people in your community, friends, neighbors, and maybe even a reporter, you might get questions about ethanol because of the expected decrease in the corn crop. Here are a few points you might consider making.
These bullet points are courtesy of the Renewable Fuels Association.
- Today, there are stocks of approximately one billion gallons of ethanol in the market – by historic measures, stocks are heavy and enough ethanol is in storage to provide sufficient supply support for the rest of the summer.
- Ethanol producers have tightened their belts in recent weeks and reduced production. Last week's production was the lowest of the year and roughly 10% below levels from January.
- Still, the industry remains on pace to easily satisfy this year's RFS target of 13.2 billion gallons. Year-to-date monthly EIA production data shows annualized ethanol production of 13.9 billion gallons.
- Additionally, the US continues to export ethanol due to domestic market constraints. We're on pace to export 900 million gallons this year.
- Finally, there are currently some 2.5 billion surplus Renewable Identification Numbers (RINs, or "credits") available to help obligated parties meet their RFS requirements. This rolling excess of credits has been accumulated over the last several years as oil companies have over-complied with their RFS obligations due to ethanol's attractive blending economics. Remember, the RFS is fundamentally a requirement to turn in a pre-determined number of credits to EPA to demonstrate compliance annually. This overhang of RINs provides sufficient cover for obligated parties to fulfill RFS volumes and time for both ethanol and grain markets to adjust.
The bottom line is the EPA has no justification for altering the overall RFS in any way, nor does it have the authority to impulsively reduce the program's targets. Ultimately, the market will sort out any imbalances in supply and demand. Much like the petroleum industry, ethanol producers will read market signals and make decisions accordingly.