If corn yields average 120 bushels per acre this year and EPA does not grant a waiver to the 13.8 billion gallons of ethanol for 2013, the price of corn will be $8.57 or $1.99 per bushel higher than if EPA reduces the renewable fuel standard (RFS) for ethanol to 7.75 billion gallons (25-percent reduction in the RFS), according to a Purdue University report entitled “Potential Impacts of a Partial Waiver of the Ethanol Blending Rules.” The study was conducted at the request of the Farm Foundation and was featured on a web conference yesterday.
If the average corn yield is 126 bushels per acre and a partial waiver reduces the mandate to 7.75 billion gallons for next year, the corn price would be $5.80 per bushel or $2.01 per bushel less than no mandate. Similarly, a yield of 132 bushels per acre would further lower the corn price to $5.02 per bushels or $2.00 less than no waiver of the mandates. Various levels of renewable fuel identification numbers (RINs) were used for the four scenarios presented in the report.
The report said that a range of possible impacts depends on the price of oil, the price of corn, the magnitude of the drought, the economics of switching away from ethanol, and technical flexibility of refiners and blenders. If it is assumed there is limited flexibility on the part of refiners and blenders in the near term, the impact of a waiver would be very small or nil. If refiners and blenders cannot or choose not to change their current practice of using 100 percent ethanol blends, than a waiver does not matter. Technical and market constraints would override the waiver, the report explained.
Dr. Wallace Tyner, one of the study’s authors, explained that EPA will have much to consider before rendering its waiver decision. “It will have to determine what impact issuance of a waiver actually would have, given the way the market functions at present. For technical and economic reasons, refiners may well continue to use nearly the same amount of ethanol, even if they are not required to because of a waiver. Technically, they may not want to change their current mix of gasoline and ethanol to make 87-octane gasoline, as an example. Economically, they would not be expected to reduce ethanol use as long as ethanol prices are below gasoline, as they are now. If refiners and blenders don’t have or choose not to use operating flexibility, and if reduced use of ethanol is not economical, then a waiver would have no impact,” Tyner said.
Should a waiver lead to reduced ethanol use, EPA could have an influence on who bears the brunt of the drought-related corn losses, Tyner said. “The total amount of harm from the drought is in the tens of billions of dollars,” he said. “The EPA cannot change the loss. It can only potentially redistribute it among the affected parties; ethanol producers, livestock producers, corn growers and domestic and foreign consumers.”
The two other economists who conducted the analysis for the report, Christopher Hurt and Farzad Taheripour, presented their findings during the web conference, which can be viewed on the Farm Federation website by clicking here.
