Dave Reeble [Read-Only] - NIOP · Annual RFS Mandates 1/30/2014 Advanced Economic Solutions 26 CORN...

Background

• - Congress passed the Energy Independence Security Act (EISA) in 2007

• Established specific mandates for corn-based ethanol and biodiesel• Corn ethanol: 2014=14.4 B gallons, 2015+=15.0 B gallons• Advanced biofuels: 2014= 3.75 B gallons, 2016=7.25 B, 2022= 21 B

• (Advanced = biodiesel, cellulosic ethanol or imported sugar-based ethanol)

• - Assumptions in EISA Proved Wrong!• Gasoline consumption was expected to rise from 142 B gallons to 150 B

gallons• Actual consumption has declined 6% to 134 B gallons

• Cellulosic Ethanol was expected to be invented• EPA has reduced the cellulosic mandate by 98% + each year since the mandates

began

• EPA assumed blend wall would be no problem (E15 or E85)• E15 has only found very limited success (60 stations nationwide)• E85 has not been adopted (not priced to make economic sense)

1/30/2014 Advanced Economic Solutions 24

Ethanol Blend Wall vs. MandatesSomething has to give….


Annual RFS Mandates


CORN ETHANOL MANDATE

- 2014 =14.4 B GALLONS**

- 2015+ = 15.0 B GALLONS

- 10% Blend Wall: 13.4 B

GALLONS

ADVANCED BIOFUEL MANDATE

- 2014 = 3.75 B GALLONS*

- 2016 = 7.25 B GALLONS

- 2022 = 22 B GALLONS

- Met w/ Biodiesel, Cellulosic

or Sugar-Based Ethanol

* EPA has proposed reducing the 2014 advanced mandate to 2.21 B, and the 2014 corn ethanol mandate to 13.0 B

EPA Proposes Cuts in 2014 Mandates • - By law, EPA proposes and sets annual mandates for each

category of biofuels (overall, biodiesel and cellulosic)

• - Prior to 2014, EPA had been reducing cellulosic mandates, but had never touched other mandates

• - In November 2013, EPA announced the 2014 proposed mandates

• Corn ethanol: 13.0 B gallons (vs. EISA statute 14.4 B gallons)

• Advanced biofuels 2.21 B gallons (vs. EISA statute 3.75 B gallons)

• Biodiesel 1.28 B gallons (EISA statute not specified)

• - Based upon 10% blend wall leading to “inadequate domestic supply”

• - Final decision for 2014 mandates expected this spring


Precedent For Reducing Mandates: Cellulosic Ethanol


500

6 10

100

200

300

400

500

600

Original EISA EPA Rule Actual Output

Cellulosic RFS for 2013

Million Gallons

2014 Cellulosic RFS: Original EISA 1000 mm, EPA Proposed Rule 14 mm (-98.6%)

What About Biodiesel?


• - Advanced mandates scheduled to double to 7.25 B gallons in 2016

• - 3 Potential Advanced Biofuels: • Cellulosic Ethanol (not commercially viable, would faces blend wall challenge)• Imported Sugar-based ethanol (faces 10% blend wall challenge)• Biodiesel – the only viable fuel to meet advanced mandates

• - If EPA elects to keep advanced biofuels as scheduled, the burden will fall on biodiesel to meet the mandates

• 2013/14: 5.2 B pounds of soyoil (26% of production) used for biodiesel production

• 2016: As much as 15 B pounds of soyoil needed (75% of current production)*

• - Net Effects:• Sharply higher soyoil prices*• More soybean acres needed (+17 mm between 2013 and 2016)*• This means less corn acres• End result is higher prices for soyoil, soybeans and corn

* Based upon results of AES study “An Economic Analysis of EPA’s Proposed 2014 RFS Rule”, January 2014

Biofuels – Current Environment

• - EPA Reviewing Comments on 2014 Proposed RFS Rule• Over 10,000 formal comments already received• Expected to finalized and released April-May • EPA’s decision will be followed by legal challenges

• - Corn Prices Have Declined Significantly• Current nearby futures: $4.30 vs. $7.20 YA (-40%)• Less pressure for immediate legislative change in EISA

• - E15 Availability Remains Limited • 60 stations carry E15 (out of 170,000 nationally)

• - E85 Gaining Acceptance Very Slowly• 3300 stations carry E85 (2%)• Using E85 not Economic (20% lower MPG)


What Lies Ahead for Renewable Fuels:

- 2014 mandates decided during 2014-Q2

• Mostly Likely Scenario: EPA Proposed 2014 Standards Become Law

• Total mandate set at 15.21 B gallons• Conventional (corn) ethanol requirement reduced to 13.0 B gallons

(original 14.4 B)• Advanced biofuel mandate set at 2.21 B gallons (original 3.75 B)

Implications of Proposal Becoming Law:• Blend wall challenges would be resolved for 2014…• But EPA’s 2014 standards likely to be contested in court

• Uncertainty for several years?

• Lower 2014 mandates set precedent for lowering mandates in future years

• Retail gasoline prices have limited impact• Still uncertainty regarding biodiesel / advanced mandates


What Lies Ahead for Renewable Fuels:

- Legal / Legislative

• - EPA’s decision will be contested in court • “Inadequate domestic supply” may not hold up in court

• Timing of decision could be months or years

• - Congress tackles RFS reform until after 2014 elections?• Better political environment to change the 2007 EISA during 2015

• Key issues:• Lack of cellulosic fuel

• Inability to circumvent 10% blend wall

• Inflexibility in years of short corn crop

• Uncertainty due to legal challenges

• Other?

- Biodiesel $1 per gallon tax credit – probably renewed at some point during CY2014 (retroactive to 1/1/14)


-580 to ????

-450 to +300

The Buses:The Buses:The Buses:The Buses:

• “To To” season is almost here!

• Running out of old crop soybeans!• Getting a bit late for cancellations to save us!• Will we “find” more soybeans?• How many soybeans can we import?

• How much will we eat?• Trans Fat ban?• Substitutions?

• Biodiesel• Fate of the tax credit?• Final mandates?• Rising diesel prices

• Plenty of canola in Canada! • Will we be able to get it moving?

• China – Is the Chinese economy slowing?

February 2014

(AES Forecasts)

1.4%

-3.0%

-4.0%-4.4%

-5.5%

-0.1%

-1.6%

-4.3%

4.8%

-3.1%

-7%

-6%

-5%

-4%

-3%

-2%

0%

1%

2%

3%

4%

5%

6%

04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14F

VS

Yr

Ag

o

Domestic Soyoil Food Usage(13/14 Forecast)

AES / MPLLC Monthly Market Update 36

Estimated Food Use of Vegoil(Source: Soyoil - AES, Canola/Palm - USDA)

February 2014 AES / MPLLC Monthly Market Update 37

15783 15088 14256 14243 14017 13414 14053 13610

1936 28512778 2809 3616

3810 3457 4125

13231936

1918 18921878 2068 2216 2244

6000

8000

10000

12000

14000

16000

18000

20000

22000

06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14F

Source: USDA PSD, AES

Est. Food Use: Soyoil / Canola / Palm Oil Usage (MM Lbs, 13/14F)

Palm For Food

Canola Food

US Soyoil Food

- US 13/14 food use (soy + canola + palm) forecast +1.3% (vs. USDA = YA)

- - Soy -3.1%, canola +19.3%, palm +1.3%

-580 to ????

+300 to -450

+100 to -210

+100 to -100

818 to 2658

March 3, 2014 MPLLC Weekly Market Update 40

(USDA Forecasts)

07/08 08/09 09/10 10/11 11/12 12/13 13/14

Area Planted MM Acres 15.6 16.2 16.2 17.6 18.9

Area Harvested MM Acres 15.6 16.0 16.1 16.9 18.7 21.7 19.8

Yield BU/Acre 27.1 34.7 35.3 33.3 34.4 28.1 40.1

Production MMT 9.6 12.6 12.9 12.8 14.6 13.9 18.0

Beg. Stocks MMT 1.8 1.5 1.9 2.8 2.2 0.7 0.6

Imports MMT 0.2 0.1 0.1 0.2 0.1 0.1 0.1

Total Supply MMT 11.6 14.2 15.0 15.8 16.9 14.7 18.7

Exports MMT 5.8 7.9 7.2 7.2 8.7 7.1 8.1

Crush MMT 4.1 4.3 4.8 6.3 7.0 6.7 7.8

Other Use MMT 0.2 0.1 0.2 0.1 0.5 0.3 0.3

Total Use MMT 10.1 12.3 12.2 13.6 16.2 14.1 16.2

Ending Stocks MMT 1.5 1.9 2.8 2.2 0.7 0.6 2.5

% of Use 14.5% 15.8% 22.9% 16.2% 4.4% 4.3% 15.4%

Canadian Rapeseed Supply/Demand(Million Acres/Tonnes)

2013 Canadian Rail Car LoadingsCanola -9.5% vs. Crude Petrol +51%


February 24, 2014 MPLLC Weekly Market Update 42

Chart courtesy of Don Roberts

February 2014 AES / MPLLC Monthly Market Update 45

(USDA Forecasts)

25.828.3 28.7

37.841.1

50.352.3

59.2 59.9

69.0

41%44%

42%

48%

53%

58%56%

62%

57%

66%

0%

10%

20%

30%

40%

50%

60%

70%

10

20

30

40

50

60

70

80

04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14

China Soybean Imports & Share of World Trade

China Economy Growth Pace Declining


Declining Interest in Capital Investment in China


Dave Reeble [Read-Only] - NIOP · Annual RFS Mandates 1/30/2014 Advanced Economic Solutions 26 CORN...

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