Ethanol Future Remains Cloudy After EPA Delay

Abstract

Both backers of the ethanol industry and its opponents saw positive signs in the U.S. Environmental Protection Agency’s (EPA’s) recent announcement that it will likely decide whether to allow 15% ethanol by next summer. And the corn futures market reacted with a yawn. “[The recent] announcement prompted kind of a flat attitude,” said Jerry Gidel of North America Risk Management Services in Chicago. “It was a modest reaction at best.” EPA’s announcement that it will monitor further testing of E15 before making a decision on a petition from Growth Energy to boost ethanol blends in gasoline did not boost corn futures. “From the standpoint of what is being projected by USDA, I don’t know that it changes the projection of 4.2 billion bushels,” said Gidel, who tracks the ethanol industry’s use of corn. “That USDA projection for the current marketing year might have been on the low side if EPA had approved a temporary boost to 12% ethanol blends,” he said. Some analysts expected the ethanol industry to use up to 4.5 billion bushels of corn if that had happened. “The ethanol market, and demand for corn used to make it, might be helped more by current high prices for sugar,” Gidel stated. If they remain high until next summer’s vacation driving season, less of Brazil’s sugar crop could be used for fuel, translating into lower imports of Brazilian ethanol and perhaps demand for another 300 million gallons of U.S. ethanol. If the EPA had approved an immediate jump to 12% blends, this would have translated into additional demand of as much as 2 billion gallons of ethanol, according to Matt Hartwig, spokesman for the Renewable Fuels Association (RFA). That would be an obvious boost for an industry that still has about 1.2 billion gallons of idled capacity after bankruptcies and losses a year ago. RFA has argued that the EPA already has legal authority to allow E12 because it once allowed 10% ethanol to be blended into gasoline that had another octane booster, MTBE. The combination of the two fuel additives was comparable to E12, Hartwig said.