Ethanol Waiver May Lower Corn But Raise Gas Prices

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August 23, 2012

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by Bertha Coombs (CNBC) Calls are growing to suspend the federal ethanol production mandate next year, as the worst drought in more than half a century has devastated the corn crop in the U.S. The question is whether a waiver of the Renewable Fuel Standard, or RFS, will actually bring down sky-high corn prices.
…In response to the spike in corn prices, Cooper said ethanol producers have seen margins fall and as a result have been forced to reduce their use of corn. Roughly two dozen of the nation’s 200 ethanol plants have gone idle this summer, effectively reducing production by 15 percent.
…“Refineries, when they’re making their base stock to blend with ethanol, are unlikely to make any changes at the local level,” said oil industry consultant Andy Lipow, of Lipow Oil Associates.
One issue that complicates retooling, is that using less ethanol would involve changing the octane levels of the gasoline refiners produce. Many now refine gas with an octane rating of 84, using ethanol to boost the level to 87 for regular gasoline.
The bigger issue is price. Reducing the 10-percent ethanol blend, would raise the cost of finished gasoline. A pullback in corn and ethanol prices makes blending more attractive.
“If you were to look at the gasoline futures price it’s around $3.00 a gallon, but ethanol prices throughout the Midwest are only $2.60 a gallon which makes economic sense to continue blending,” said Lipow.
“Do you want cheap corn or do you want cheap gasoline?” asked Commodities trader Larry Shover, chief investment officer of SFG Alternatives. “That’s the conundrum we’re in.” READ MORE and MORE (Star Tribune/Bloomberg) and MORE (DomesticFuel.com) and MORE (Des Moines Register) and MORE (Reuters) and MORE (LA Times) and MORE (Star-Press) and MORE (Renewable Fuels Standard) and MORE (Midwest Energy News) and MORE (The Financial) and MORE (KCRG.com)

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