Top Farmer – Day 2, Session 1
Since I have my laptop with me today, I am going to try to do a separate post on each session for today’s Top Farmer Conference. Yesterday’s sessions were very informative and I hope today is even better.
First session today is an update on Ethanol and Bio-Diesel production presented Scott Irwin of the University of Illinois.
The Renewable Fuel Standards (RFS) have various required minimums of renewable fuel production between now and 2022. Ethanol has just about met its required minimum of about 15 billion gallons. The interesting requirement that Cellulosic production will be at least 15 billion gallons by 2022. current production is not much. Bio-diesel minimum is about 5 billion gallons by 2022.
The big growth in the Ethanol industry in the US is over (unless 15% ethanol blends get more traction). For 2013, the mandate for Cellulosic Ethanol is 1 billion gallons and current production is about 14 million gallons. The technology has not caught up with the mandate.
The current Ethanol blend wall has limited ethanol blends in gasoline to about 10%. E15 is available, however, if the infrastructure is not in place. As of 2013, the mandate for Ethanol is about 13.8 billion gallons, but the blend wall is about 13 billion gallons which will remain the same going forward. By 2015, we are supposed to be at 15 billion gallons of ethanol, but there is only 13 billion gallons that can be reasonably used. This is starting to create a problem. The gap for 2013 of about 800 million gallons can be used to meet the Bio-Diesel gap for this year.
The supply and demand laws reflects this now since the price of an Ethanol and Bio-Diesel RINs are now about equal. Last year, the value of an Ethanol RIN was about a dime and the Bio-Diesel RIN was over a dollar. The value of both are now about 80 cents or so.
E15 is available in about 20 gas stations in the US (out of about 120,000 total stations). E85 may make up the difference since there is about 11 million flex fuel vehicles. These vehicles do not count against the CAFE fuel standards and that is the primary reason for the high numbers of flex fuel vehicles. However, the price of E85 fuel should be priced at about 77% of normal gasoline to equal the fuel value of gasoline. For the last three years, the price of E85 has not gone below the breakeven level, therefore, the use of E85 has not helped much. Only 3,000 gas stations offer E85.
The bottom line is that the growth of Ethanol production will slow dramatically starting this year unless the EPA changes the standards to allow more Ethanol to meet the Cellulosic standards. Otherwise, American corn farmers have met the “Wall”.
Paul Neiffer, CPA