Two recent economic analyses support the conclusion that waiving or modifying policy that encourages ethanol production from corn would have little impact on corn prices. There have been calls to waive or modify the RFS due to the massive drought conditions and projected impact on corn supply and corn prices. The results of the analysis are described and linked here:
This New York Times article talks about the issue:
“At issue is whether to suspend a five-year-old federal mandate requiring more ethanol in gasoline each year, a policy that has diverted almost half of the domestic corn supply from animal feedlots to ethanol refineries..”
39% is not really “almost half”, plus when you calculate the DDGS that return to the animal feed market after ethanol extraction, the amount of corn consumed is more like 25%
In addition, when corn prices are this high, the economics of ethanol production don’t work and don’t contribute the price increase:
“But the ethanol industry says that its corn consumption is down 12 percent since the start of the summer and that weekly ethanol production is at a two-year low. As corn prices have risen, refineries have scaled back production, idled dozens of plants and sold ethanol inventories. As a result, the industry may consume 10 percent less of this summer’s crop than last year’s, government and industry officials said.”
At least on the investors side, there is little belief that anything will change within the RFS, mostly because there are lots of credits floating around that can be used to fulfill the RFS, and are much cheaper than trying to make ethanol with expensive corn:
In older news, I thought I would pass on some good news for bioenergy. Despite criticism of military investment in biofuels, the senate approved a defense bill including that funding, as well as the PTC (the wind energy credit), and the algae bioenergy tax credit. The senate & house still have to agree on final versions of these bills.