Corn and Ethanol Costs – It Makes No Sense

August 24, 2012 12:18 pm

Recently I read this story and bookmarked it. I have been trying to figure out if anyone in Washington is paying attention to the rising price of corn.

Does it make any sense that there are requirements to use ethanol at this time? Shouldn’t someone try to do something about this?

I am no expert on ethanol, but come on….

Ethanol credits held by U.S. refiners may help reduce demand for the blending fuel and ease pressure on rising prices of corn, from which ethanol is made, the International Energy Agency said. The credits, known as Renewable Identification Numbers or RINs, were given out when refiners use more than the required quantity of ethanol mandated by the Renewable Fuels Standard, and can be used to avoid purchases now. About 2.5 billion
credits have been banked by refiners in recent years, according to the Renewable Fuels Association trade group, the IEA said.

The RIN credits “provide some flexibility for blenders to meet the 2012 RFS requirements despite the projected lower ethanol output, and could help reduce some of the pressure on corn prices,” the Paris-based IEA said in a monthly report today.

Ethanol prices have risen about 19 percent this year in part as a U.S. drought means farmers can find higher prices selling corn as a source of food rather than fuel. Corn futures rallied to a record and are up 27 percent this year. A bipartisan group of twenty-five U.S. senators sent a letter on Aug. 7 to the Environmental Protection Agency Administrator Lisa Jackson urging use of her waiver authority to adjust the country’s ethanol mandate because of the impact on corn prices caused by the most severe U.S. drought in 56 years.

Ethanol will be produced from 38 percent of this year’s crop, down from 41 percent last year, according to government estimates. There is currently no indication from the EPA that it will waive the RFS mandate, IEA said. U.S. ethanol stockpiles are “fairly high” at 800 million gallons, providing the possibility to satisfy “at least part of” the 13.2 billion gallons of ethanol mandated under the RFS this year, the energy agency said.

Ethanol producers have responded to higher feedstock costs by slashing output in recent months. U.S. production was 817,000 barrels a day in the week ended Aug. 3, down from 908,000 a year earlier, according to the Energy Department.

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