Are we celebrating?
The long-awaited White House announcement on biofuels came out last Friday October 4th . KCGA, NCGA and 2 out of the 3 national ethanol groups expressed gratitude to the President for his efforts. So, what does this mean for the ethanol industry and what additional corn demand can we expect? Well, unfortunately, while we can qualitatively say the announcement was positive, quantitatively, we are still playing the waiting game, and we might have to wait until late November. The best description of this announcement that I have heard so far is that it is the first step of a months long process, not a final ruling.
Specifically, EPA was ordered to supplement the 2020 volumes of the Renewable Fuels Standard (RFS) to ensure more than 15 billion gallons of conventional ethanol will be blended in 2020. This is great news, but this new volume is subject to public comment and full rulemaking, therefore we do not have a final volume.
EPA was also ordered to account for small refinery waivers granted, also a great news, but it’s unclear if these will be issued on a one to one basis or what year the reallocation will be assigned to. There was also a commitment to issue a separate rule to remove additional E15 barriers.
The administration also announced the will continue to work to address ethanol and biodiesel trade issues. China comes top of mind when we think about potential trade issues, as prior to the trade war with China, ethanol exports to China were growing at record rates. Other potential trade issues include bureaucratic barriers put up by countries such as India, where ethanol can only be imported as an industrial chemical, not a motor fuel.
USDA will also seek budget opportunities for another infrastructure program for higher biofuel blends. The original Biofuels Infrastructure Program (BIP) provided nearly $100 million in federal funds of which Kansas secured $1.3 million. Kansas Corn has continued to fund this program in absence of the federal funds and there are more than 100 dispensers offering higher blends because of the federal and state programs. Therefore, Kansas should be well positioned to receive additional federal funds if they are made available. This has great potential in the medium and long-run but will do little to impact the current farm financial situation.
As this process continues, we will know more on the quantitative impacts of this announcement. Also, KCGA will engage policymakers in all applicable areas as these rules are being finalized.