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Relaxing RFS Mandate May Not Have Desired Effect

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As the drought continues to take its toll on the corn and soybean crops – the Director of the Center for Agricultural and Rural Development at Iowa State University has taken a look at the economic effects of short corn and soybean crops as well as a potential Renewable Fuel Standard waiver. CARD Director Bruce Babcock used a maximum corn yield of 148-bushels per acre and an average yield of 138-bushels per acre. The lowest yield used was 120-bushels per acre. Babcock says two findings stand out. First – he says the flexibility built into the RFS allowing obligated parties to carry over blending credits from previous years significantly lowers the economic impacts of a short crop. According to Babcock – the 2.4-billion gallon amount of flexibility assumed in the study lowers the corn price impact of the ethanol mandate in the drought year from $1.19 per bushel to 28-cents per bushel. As such – unless corn yields are much lower than assumed in the study – he says relaxing the mandate further would have modest impacts on corn prices. Babcock says the second stand out finding implies that ethanol plants will be a strong competitor for corn even without a mandate.

Babcock says the finding is that if the current price of ethanol relative to gasoline accurately reflects the value of ethanol to blenders – then the price of ethanol will be supported at quite an attractive level as long as ethanol quantities are not pushing up against the blend wall. In the no mandate scenario – Babcock says ethanol production only drops by 600-million gallons when the mandate is waived. According to Babcock – additional flexibility in ethanol mandates may not result in as large a drop in feed costs as livestock groups hoped. Again – the high value of ethanol is only high relative to the price of gasoline. Babcock says a waiver of the mandate would have a larger impact if gasoline prices drop.

Source: NAFB News Service