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dan45mcc

E85 wins no matter what EPA does with RFS

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So as most of you know or should know the EPA is considering lowering the RFS from for corn from 14+ billion gallons to a max of 13 Billion gallons in 2014.

 

 

The Oil Industry has been lobbying for this because they say they have met the Blend Wall and have no place to put the additional 1+ billion gallons scheduled for next year.. and because of that they will have to buy RINS ..and of course the price of RINS then will rise .. 

 

 

 

 

 

 

So lets say that scenario Plays out and the EPA lowers corn ethanol from 14+ to 13 billion gallons.. what that means is that there will be a surplus of corn thus lowering corn prices even more ..thus lowering the rice of ethanol ..thus widening the spread between E85 and Gasoline.. 

 

 

That wider spread means more demand for E85 and more E85 Installations due to that demand  AND due to the fact that if the ethanol Industry wants to get back that additional 1 Billion gallons they have to expand E85..to get past the blend wall

 

 

 

 

E85 will be far less expensive in that scenario

 

 

 

 

2nd Scenario is that the EPA does nothing and leaves the  RFS as is and Oil is required to blend up to 14+ billion gallons of corn ethanol next year or buy rins .

 

 

 

 

First and foremost if the EPA leaves the RFS as is corn prices rises ..the market players immediately push corn higher on that news.. = higher ethanol prices = = higher E85 prices and lower prices spreads ..EXCEPT for the saving grace of higher priced RINS which SHOULD keep the price spread wide like it has been this past summer .

 

 

Oil does not want to pay the price of rins and finds it is less expensive to simply install more E85 and due more blending.. like Marathon did with it's Speedway Stations this summer .. so also under that scenario we also end up with more E85 pumps and should have good price spreads..but higher prices

 

 

 

 

 

 

So under either scenario E85 wins ..

 

 

 

 

the cons to scenerio number 2 is that means E85 is being subsidized by Oil .. personally I want to get rid of the word subsidized completely out of ethanol..it is simply ammunition for the anti ethanol folks .

 

 

 

 

I don't have an issue with scenario number 1 because it means more Stable Corn and ethanol prices..demand will still be strong we're taking about 13 Billion gallons of ethanol..but not so strong that it runs up the price of corn . (which not only drives up the price of E85 but also throws ethanol plants into bankruptcy)

 

 

 

 

 

 

No matter what the EPA does though E85 is looking pretty good

 

 

 

 

 

 

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Dan,

 

Your analysis is pretty good but I'd like to add a few points for the readers.

 

1.  Every buyer of ethanol gets a free RIN

2.  Oil companies have had plenty of time to offered higher level blends to the market in order to prevent high RIN prices and meet the conventional ethanol blend levels in 2014-2016 when they cap at 15B gallons.

Let's not forget that they pocketed the blenders credit when it was designed to be utilized for infrastructure.  They collected the blenders credit from 2009 when RFS2 was implemented until it expiration at the end of 2011.  It was clear at that time there would be a blendwall to break through.  They should have used those funds to bring higher level blends to the public but instead did everything they could to prevent that choice for the consumer while that money flowed to their bottom line.  My point is, no one should feel sorry for them if they need to purchase a RIN from the companies that are blending beyond their obligation.  E85 is not subsidized by the oil industry.  A RIN is generated for each gallon of Ethanol that is blended into E85 and that has a market value.  The market the oil companies worked to create during the RFS2 negotiations. All the oil industry has to do is not block E85 and E15 from getting to the consumer and RIN prices drop.  Marathon is the exception, cheers to them.

3. The tradable RIN system was proposed by the oil industry.  Don't forget that!

4. 14 Billion gallons of ethanol will be produced in the U.S. in 2014 regardless of the EPA's decision and we will still have a 2 Billion Bushel carryout.  The EPA's will decide the export volume.  Do we use it here, or do we export it.  The RFS calls for it to be used here.  Implement the law and E85 will spread like wildfire.

 

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4. 14 Billion gallons of ethanol will be produced in the U.S. in 2014 regardless of the EPA's decision and we will still have a 2 Billion Bushel carryout.  The EPA's will decide the export volume.  Do we use it here, or do we export it.  The RFS calls for it to be used here.  Implement the law and E85 will spread like wildfire.

 

 

 

 

Export is another thing we wont agree on.. I'd ban Corn ethanol Exports completely..just un-necessarily raises cost for everyone for the benefit of a few. 

 

 

This is an Industry that is very good at shooting itself in it's foot running up it's feedstock costs..Filing Bankruptcy then blaming everyone under the sun but themselves

 

 

It's an Industry that is very good at creating enemies at every move from Poultry / Livestock , Environmentalist , Auto Industry and consumers..  E15 is not a "choice" unless of course it is on blender pump.

 

 

 

 

Ethanol's  2 pronged focus .. should be working WITH the Auto Industry on a  solution to get every single vehicle coming off the line to be a FFV .. (not trying to force E15 on a population that does not even want it.)

 

 

And Developing out it's own E85 (and other high blends" Market)..(like you guys are doing as well as some others)

 

 

The Ethanol Industry (same as Oil) also never Invested in E85 during the high roller / gravy days of the blender credits ...which benefited the Ethanol Industry via demand..

 

 

and what did the E85 Consumer get during that time when Oil was getting the Blenders Credit and Ethanol was getting the Volume demand ?

 

 

High E85 prices and narrow spreads.. 

 

 

So from a  E85 consumer advocacy ..really don't care if the EPA pulls back demand a bit .. that will shed more of the fast buck greed folks out of the Industry  ..leaving the folks with long term investments standing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PLUS ..we need to make sure there is room for the advanced feedstock ethanol production that is just starting to come on line .. so if corn loses 1 billion in 2014 ..advanced feedstock should be able to cover 200 million gallons or so if I calculate correctly with the 3-4 new plants

 

 

Considering E15 isn't progressing as the Industry had lobbied so hard for ..there really isn't a  "need" for 14+ gallons of corn ethanol anyways ..

 

 

We have Low rin prices right now (20 cent range)  and low corn prices and ethanol is trading for 90 cents less than gasoline .... where we are at right now is good for everyone

 

 

Everyone should be able to make a nice solid profit ..from Poultry to Ethanol Plant and Oil has little to complain about ..low rins and E15 didnt pan out(yet anyways)

 

 

AND Consumers are getting a  fair deal at the pump

 

 

This past summer corn was expensive  difference  between ethanol and gasoline was in the 30 cent range the ONLY thing that allowed a Nice Price Spread was Expensive RINs ..    no thank you .. that is not a solid foundation for E85..

 

 

 

 

 

 

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again that's just my personal view.. but as I originally said .. either way the decision goes E85 will win..maybe not the way I want it to win.. but yeah High Rins will also get us there..    Lets just say I'd have more pride if we did it with out RINS and with OUT (required)  help from OIL

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