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Off 2.2% today in the wake of a crop report confirming what everybody already knew (a very short...
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Friday, August 10, 2012, 2:46 PM ETOff 2.2% today in the wake of a crop report confirming what everybody already knew (a very short crop), corn may also be fading on a rumor the White House could be open to waving the ethanol requirement for fuel.
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Politicians are worthless.
As someone who trades RINs within the RFS program (mostly biodiesel and advanced biofuel, but some ethanol RINs too), I'd like to highlight a pragmatic alternative that would achieve the same end.
To have any shot here at all, we need a solution the corn ethanol industry can't mistake for a permanent setback.
First, a little background for any of your readers unfamiliar with RFS. RINs ("Renewable Identification Numbers") are market-determined subsidies for 4 categories of biofuel, which oil companies are required to accumulate in proportion to their petroleum fuel sales. They acquire them either by bringing gallons of biofuel to market themselves, or by purchasing RINs in a spot market from other oil companies and from biofuel producers and distributors.
With that in mind, a more realistic alternative to waiving RFS would be to simply allow oil companies to use more corn ethanol RINs from 2011 to meet their 2012 RFS obligations.
Extra gallons from last year's record production levels would then offset this year's shortfall.
Oil companies can already use prior-year RINs for up to 20% of their current year obligations for each RIN category. Right now 2011 corn ethanol RINs ("D6 RINs") are trading for about 1/10th the price of those from this year ($0.0050/gallon vs. $0.0460/gallon), which suggests that most major refiners have already exhausted their 20% carry-over.
If the D6 carry-over for 2012 were increased to, say, 40%, these prices would converge and this year's corn ethanol mandate would, in effect, be reduced by over 2 billion gallons.
The mandated volume itself would not have to be altered.
The corn ethanol lobby would have less reason to worry because even if this interim measure somehow survived into next year, 2012's lower production levels mean there simply won't be enough excess credits to carry-over and displace 2013's gallons. And though the EPA never does anything quickly, the administrative turnaround on this type of short term, indirect fix would probably be much faster.
Of course, this stopgap would not resolve the larger problems with corn ethanol and the policy framework that supports it. But if we're serious about mitigating the impact of this drought, we don't have time for a protracted debate with one of the country's most powerful lobbies. The opportunity to act will soon expire, if it hasn't already. Whatever we're going to do, we have to do it fast.
*all irrigated corn is doing fantastic
*Vilsick just announced that while the corn crop production is down 13% from 2011, IF reports are correct, not inflated for profit to farmers who have lost their crop, it will still be as large as the crop production from 2006, just 6 years ago. (ie overplanting)
*There will be a bunch less crops to move by rail or truck, less storage fees, less ethanol, less profit for all involved.
*Insurance companies, which include Monsanto, Wells Fargo, John Deere, ADM, and others. The Feds will pick up a very good share, but not all of it.
And yes, everything in commodities is cyclical, so the Ethanol mandate had zero connection to reality. Not in costs, value or need.
It was and is all political. Make your trades based on reality.