Biofuel Blending Brawl

Several U.S. oil refiners have racked up a whopping $1.6 billion deficit in biofuel credits. And much to the chagrin of ethanol advocates, rumor has it that President Biden may let them off the hook.

Refresher: The U.S. Renewable Fuel Standard (RFS) requires oil refiners to blend biofuels into their products. If they don’t, they can purchase compliance credits, known as “Renewable Identification Numbers” or “RINs” from those refiners who do.

COVID-19 strikes again: Due to lower fuel demand, higher RIN prices, and other economic woes stemming from the pandemic, refiners have fallen behind in compliance credits and are pressuring Biden and the EPA for relief.

Oh, and this: Sources also state that the EPA is considering holding steady or even lowering the RFS blending requirements for the upcoming year.

And that has a mixed bag of corn-state and climate-conscious lawmakers sounding alarm bells… including members of the president’s own party.

Twitter feed: “The Biden Administration & EPA should not be in the business of undermining the #RFS and destroying demand for Iowa’s farmers & producers,” tweeted U.S. Representative Cindy Axne (D-Iowa).

With new RFS announcements expected in the coming weeks, all eyes are on President Biden and the EPA to see just how serious they are about reducing fossil fuel dependency.

While we’re here: The world’s top two ethanol exporters, Brazil and the U.S., are expected to actually tamp down ethanol production in the coming months. Soaring prices of American grain and Brazilian sugarcane are raising production costs of ethanol… which is no bueno for the already surging fuel prices in both countries.

A Biofuel Boom?

Soybean oil demand is skyrocketing, and bean processors are pulling out their “Go Green” stickers and gearing up for what they believe will be a biodiesel boom.

Refresher: The Renewable Fuel Standard (RFS) is scheduled to reset in 2022, and the EPA has the authority to set required biofuel volumes. With an expected “green agenda” push by the Biden Administration, Cargill is ratcheting up their processing capacity: taking money from the bank and putting it in the (biodiesel) tank.

By the numbers:

  • 25%: Approximate increase in soybean oil futures already this year.
  • $475 million: Cargill’s five-year investment in processing plants across seven states.
  • 100%: Planned increase in soybean crushing capacity at Cargill’s Sidney, OH plant

And it’s not just Cargill who’s rolling up their sleeves. ADM has announced processing efficiency improvements, and Bunge – the world’s #1 oilseeds processor – is planning to invest in refinery efficiency and tank-storage capacity.

Oh, and this…
 Soy producers and processors aren’t the only ones with skin in the game. The corn industry is promoting more than just kernels of truth about ethanol as the EPA starts shelling out its plans for the RFS. All this in an effort to remind EPA Administrator Mike Regan that ethanol has 40%-50% lower greenhouse gas emissions than gasoline.

Bottom line: Rising future demand should bode well for producers. Zippy Duvall, American Farm Bureau President, made his case when he notedHomegrown, renewable fuel has been an American success story, and expanding to more international markets can make it a global success story.

Ingredion Nixes Ethanol at Oldest US Biofuel Plant

A rising tide may raise all ships, but rising corn prices are forcing some ethanol producers to consider abandoning ship. Just ask Ingredion.

The ingredient giant announced this week it will end ethanol production at its Cedar Rapids, IA facility. A letter sent to suppliers made the reasoning plain as day: Gas demand is too low and corn prices are too high.

By the numbers:

→ US Energy Information Administration (EIA) reports 2020 ethanol production averaged 900,000 barrels/day, a 13% drop from 2019.
→ Even as production returned to 87% of the 3-year average after the initial COVID-19 shock, EIA data reveals demand is not recovering to pre-pandemic levels.
→ US corn prices continue to hover around $5, a welcome sign for farmers but another hole in the ship for ethanol.

Where this goes: Gasoline demand is unlikely to increase anytime soon as winter sets in. And turmoil in the Argentina corn export market plus dry South American weather will keep corn prices high. Unless next week’s WASDE report slows market momentum, don’t expect ethanol execs to put away the life vests for now.
+ On the bright side: Not all is lost. The 126-year-old facility in Cedar Rapids has survived fires, floods, and recessions. Ingredion plans to continue producing corn-based industrial goods on the premises.