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Ethanol industry faces critics, drought

DANIEL LOOKER 08/09/2012 @ 3:19pm Business Editor

The American Coalition for Ethanol marked its 25th anniversary at its annual meeting in Omaha Thursday. Celebrate wasn't quite the right word, the group's executive vice president, Brian Jennings told members, "given what's going on in the industry."

Ethanol production is down at least 15% this year, with plants shutting down and reducing capacity in the face of withering supplies of corn priced at about $8 a bushel and higher on the spot market. And in Washington, DC, the industry is under attack. This week, 156 members of the House of Representatives and 25 U.S. senators wrote EPA Administrator Lisa Jackson to request a waiver from the Renewable Fuel Standard, the mandate requiring oil refiners to blend ethanol into gasoline.

"Folks that have always opposed the Renewable Fuel Standard are exploiting the drought," Jennings said. "The plain truth is that it's the drought that is the problem, not the renewable fuel standard."

Jennings said that for the EPA to waive the RFS, which next year will require the use of 13.6 billion gallons of ethanol, the agency must show that the mandate is harming the U.S. economy. Several independent studies from Iowa State University, the University of Illinois and private analysts show that waiving the RFS would have very little effect on corn prices, Jennings said.

The fuel industry also has large supplies of Renewable Identification Numbers, which are traded between blenders who have used more than their mandated amount with those who haven't meet EPA requirements. The EPA allows up to 20% of excess RINs to be carried over into the next year. Jennings said one private analyst estimates the industry has excess RINs for some 3 billion gallons of ethanol that could be used next year, and the University of Illinois is estimating stockpiled RINs at 2.4 billion gallons. That means actual mandated ethanol production might be as low as just over 11 billion gallons.

In an interview with Agriculture.com later, Jennings said that industry's total capacity is close to 15 billion gallons. If the RFS requires only 11 billion gallons, mandated production would be only about 73% of capacity.

When asked if he expects production to fall that much, Jennings said, "I hope not, I think a lot of it will be determined by how many bushels are actually produced at harvest. I don't know what the availability of RINs will be or what the idle capacity will be."

PRODUCTION SHUT-DOWNS

In the past few days a half-dozen ethanol plants have announced production shut-downs, he said. "Then you have scores of plants that are cutting back or aren't making ethanol that aren't publicizing it."

Also on Thursday, another ethanol trade group, the Renewable Fuels Association, said that ethanol production has fallen 15% since the beginning of the year, showing that producers are already rationing demand for corn.

"This summer's drought has been a heart-breaking and emotionally taxing situation for all of us engaged in agriculture-related businesses," RFA chairman Chuck Woodside said in a statement, "However emotional the circumstances may be, the path forward must be based on careful analysis, sound reasoning, and facts. The facts clearly show that between surplus RIN credits and ethanol stocks, there is a corn demand cushion of at least 1.25 billion bushels built into the ethanol market. A rational examination of the RFS program and other important factors clearly demonstrates that a waiver of the RFS is not necessary or sensible."

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