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The Biofuels Era – A Changing of the Guard?
The increase in corn used for ethanol has been a major driver of crop prices in the New Era that began in the Fall of 2006. In the face of one of the worst droughts of the last century this summer, there have been numerous calls to limit the policy incentives to use corn for ethanol production in the upcoming year. The U.S. Environmental Protection Agency (EPA) is currently considering formal requests for this potential relief. While ethanol has garnered nearly all of the headlines in recent years, its role as the leading driver of crop prices may be nearing an end.
The Renewable Fuels Standards (RFS) established in 2005 and amended in The Energy Independence and Security Act of 2007 plays a central role in this story. Those amended standards are summarized in Table 1 in three categories: Total, Advanced, and Renewable. The renewable standard has been and will likely continue to be met almost entirely by corn-based ethanol. This (implied) standard increases from 13.2 billion gallons in 2012 to 15 billion gallons in 2015, suggesting the need for increasing amounts of corn to meet the standard. However, the actual amount of ethanol production over the next several years depends on a number of inter-related factors. Those factors include the way in which the advanced standards are met; the magnitude of discretionary blending (if any), particularly for bio-diesel; the magnitude of U.S ethanol imports; the size of the export market for U.S. ethanol; the magnitude of the blend wall for ethanol; the use of accumulated blending credits (banked RINS) to meet the RFS; and whether or not the RFS is amended.
2012-11-05 13:06:47
Source: http://blog.pitguru.com/futures-trading/markets/grains/1022
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