Officials with the Renewable Fuels Association (RFA) say if the EPA grants a waiver to the Renewable Fuels Standard (RFS), it would not bring the hoped-for reduction in feed prices for livestock producers and lower prices for consumers at the grocery stores. The calls for the waiver grew louder after last Friday’s USDA crop report showed a 13 percent reduction in this year’s expected corn crop due to the drought.
During a webinar today, the RFA’s VP of Research and Analysis Geoff Cooper looked at the impact of the drought on the corn crop and what it means for ethanol production and the RFS. He pointed out that some groups, particularly the meat lobby, are trying to turn this to their advantage. “These are the same groups that have been gunning for the RFS for a number of years and attempted to strike while the iron is hot,” Cooper explained. But he says their arguments that the RFS is too inflexible and the ethanol industry won’t reduce its demand for corn in proportion to the reduction in the crop just don’t hold water. “We’ve seen corn consumption by the ethanol industry drop significantly in recent months,” adding that the record surplus supply stocks of ethanol and RINs have helped the industry still maintain its end of the RFS. “The flexibility in the RFS and the responsiveness of the market itself make a waiver completely unnecessary.”
Cooper added that consumers won’t see any significant price drops in their grocery bills if the RFS is waived. He highlighted recent research that shows the waiver would produce only a 4.6 percent reduction in corn prices at the commodity level, which translates to even less for consumers when you consider that only 14 cents of every food dollar spent goes toward the actual commodity… transportation costs, support, marketing, etc. make up the other 86 cents. And he noted that consumers would end up paying a lot more for gasoline as ethanol is credited with lowering gas prices $.84-$1.07 per gallon. “Really what’s driving higher gas prices, as you would expect, are higher crude oil prices and some of the problems in the refining sector.”
Cooper concluded saying the bottom line is the ethanol industry and the market are responding and sharing in the tighter corn stocks, there is enough flexibility in the RFS to make it through a leaner year like this one, and an RFS waiver won’t reduce prices for anyone.