Source: Michael Fielding, MEATINGPLACE, 12/1/15


The final Renewal Fuel Standard (RFS) required volume obligations for 2014, 2015 and 2016 will be set at higher levels than proposed by the agency in May, the U.S. Environmental Protection Agency (EPA) announced Monday, essentially requiring that more ethanol will be blended into the nation’s gasoline supplies, which could raise feed costs in the process.

Refiners will be required to blend 18.11 billion gallons of renewable fuels in 2016 – a 4 percent increase from the EPA’s proposal of 17.4 billion gallons earlier this year.

The National Chicken Council (NCC) blasted the announcement, claiming that the EPA has set the mandate retroactively, after twice increasing the initial proposed volume levels.

“By increasing the mandated volume of ethanol beyond the blend wall for next year, and retroactively increasing the mandates for 2014 and 2015, more corn from feed and food will be diverted into fuel production, resulting in increased costs for poultry and livestock producers,” NCC President Mike Brown said in a news release. “It’s ironic that while U.S. ethanol is competitive in the global export market, the ethanol industry continues to rely on expanding the RFS mandates domestically.”

The first proposed volume was issued in November 2013 at 13 billion gallons. A revised proposal was issued in May 2015, raising the implied corn ethanol volume to 13.25 billion gallons. Monday’s announcement sets the 2014 compliance volume at 13.61 billion gallons. In setting the 2015 volume so late in the year, the agency effectively set this year’s standard retroactively at 650 million gallons more than the 13.4 billion gallon volume initially proposed in May, Brown added.

Earlier this year the NCC supported EPA's proposed actions to adjust the biofuels targets for 2014, 2015 and 2016 to reflect the practical limits imposed by the blend wall. NCC has long held that corn used for ethanol has created an uneven playing field for chicken producers. Since the RFS was enacted in 2007, chicken producers have faced more than $50 billion higher in feed costs due to the RFS.

Established by Congress, the RFS requires the EPA to set annual volume requirements for four categories of biofuels. The final rule considered more than 670,000 public comments. EPA finalized 2014 and 2015 standards at levels that it said reflect the actual amount of domestic biofuel used in those years, and standards for 2016 (and 2017 for biodiesel) that represent significant growth over historical levels.

Brown also noted that in setting the domestic mandates, EPA did not account for the amount of ethanol that is exported and the effect those exports have in diverting additional corn away from the domestic feed and food market. In 2014 nearly 850 million gallons of ethanol were exported, and through August 2015, exports are running about 5 percent higher. Combined, 2014 and 2015 ethanol exports are likely to divert the equivalent of an additional 600 million bushels of corn away from feed and food use – in addition to that which is mandated by the RFS, Brown said.

Analysis
The final ruling suggests that the USDA’s November WASDE may understate demand for corn from the ethanol industry in 2015 and 2016, JPMorgan analyst Ann Duignan wrote in a note to investors.

Compared to the May 2015 EPA proposal, the final mandate should provide a bump for corn demand, with 14.1 billion gallons of corn ethanol to be blended in 2015 (compared to 13.4 billion proposed in May) and 14.5 billion gallons in 2016 (compared to 14 billion gallons previously).

“For agriculture, we convert the 2015 and 2016 mandates into a 2015/16 corn marketing year to compare with the USDA’s current outlook for corn demand; this implies ethanol consumption of 14.4 billion gallons for the 2015/16 marketing year ending Aug. 31, 2016,” Duignan wrote, adding that approximately 5.218 billion bushels of corn will be required to meet the new level of ethanol production in the United States compared to the USDA’s current forecast of 5.175 billion bushels.

“This is a slight positive for corn,” wrote Duignan, noting it suggests that the USDA’s estimate for ending stocks of corn may be overstated by 43 million bushels, even before accounting for the impact of additional ethanol production for export. Net exports of U.S. fuel ethanol were 826 million gallons in the 2014/15 corn marketing year, she added.

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