Trump Administration a Wild Card for Ethanol Industry

by Mike Hughlett (Star Tribune) With production on the rise, there's anxiety over unknown policy shifts. -- ... While there are positive indicators for 2017 — corn prices are forecast to be stable and the federal mandate for ethanol production has been increased — the industry faces some significant uncertainties. Players in Minnesota, the fourth-largest producer of ethanol in the U.S., said there could be some export challenges.

Perhaps the biggest is President Donald Trump, who has strong ties to the oil industry, often ethanol’s nemesis pushing against higher ethanol production.

Trump has told ethanol producers he backs biofuel, but “it’s impossible to predict what he is going to do,” said Bruce Babcock, professor of energy economics at Iowa State University. “This is a complete wild card.”

The industry is tied to the federal government through the renewable fuel standard, which was created in 2005 by Congress and reinforced two years later. It requires that biofuels be blended into gasoline.

Minnesota producers actually saw operating income fall in 2016 over 2015, the association (Minnesota BioFuels Association) said. Like elsewhere, higher corn prices and low oil prices that began in 2015 squeezed ethanol producers’ profitability in the first half of last year. But corn costs declined in 2016’s second half, and exports — needed for producers’ bottom lines — rallied.

Underscoring its confidence in ethanol, Al-Corn just started site work on a big expansion, raising its capacity from 50 million gallons annually to 120 million, which would make it one of the largest ethanol plants in the state.

With motor fuel prices relatively low, Americans drove a record amount of miles in 2016 and gasoline consumption also hit a record, according to federal agencies. Ethanol demand rose with gasoline, as motor fuel usually contains 10 percent of the biofuel.

One positive factor is the growth of E-15, a blend of 15 percent ethanol and 85 percent gasoline that can be used in vehicles made from 2001 on. It’s usually about 10 cents cheaper than E-10, the common ethanol blend.

The widespread adoption of E-15, though, is still bogged down by disputes with automakers and restrictions from the EPA.

“Exports are the lifeblood of profits for the industry,” said Scott Irwin, an agricultural economics professor at the University of Illinois. “The real frosting on the cake for ethanol producers last year was the red-hot export market.”

At 1.05 billion gallons, 2016 ethanol exports were second only to 2011, according to the Renewable Fuels Association.

Brazil and Canada are the prime destinations for U.S. ethanol, together accounting for half of the industry’s exports. China has become U.S. ethanol’s third biggest export market over the past few years, with a 17 percent share. China is also the largest U.S. export market for distillers grains, an ethanol byproduct used for animal feed.

But China has indicated that it plans to significantly raise tariffs on ethanol and distillers grains, a potential blow to exports. READ MORE and MORE (Politico's Morning Energy) and MORE (Journal Star)

Excerpt from Politico's Morning Energy: OIL AND ETHANOL SOOTHING THEMSELVES THAT RFS EO IS DEAD: Oil and ethanol industry sources tell ME they take some solace from the White House's denial that it's working on any executive order to change who must comply with the Renewable Fuel Standard, especially after checking with their own sources. "I don't see it in the works at all," one oil industry source told ME, while another said neither EPA staff nor the National Economic Council, which advises the president on domestic policy, had any clue an executive order might be in progress. "So the two groups that would have to implement it didn't know it was coming," the source said.

Still, several ethanol sources tell ME they believe Carl Icahn, majority owner of refiner CVR and a special adviser to Trump, is exploiting his relationship to ensure the change happens. They've redoubled their efforts to block it.

But EO is not quite dead. It could pull through: Bloomberg reported Tuesday Icahn and Valero, another proponent of the change, had presented the White House with draft language earlier in the week, and White House staff have discussed RFS recently. The executive order could still rear its head, though as multiple people told ME, EPA would most likely have to go through a lengthy rulemaking to get it done. READ MORE