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Adkins Energy — Renewable Fuels Association — RFA drought and RFS webinar (August 2012)
22 slides from Adkins Energy's conference presentation, Aug 14, 2012
Slide 1: The 2012 Corn Crop: Implications for Ethanol and the RFS
The 2012 Corn Crop: Implications for Ethanol and the RFS Geoff Cooper Renewable Fuels Association August 14, 2012
Slide 2: Drought has Reduced Crop Size Potential by ~25%
Drought has Reduced Crop Size Potential by ~25% U.S. Corn Production, Historical and 2012 Projections 14,790 15,000 14,000 13,110 12,970 13,000 12,358 12,000 10,531 10,779 11,000 Million Bushels 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 Source: USDA, WASDE
Slide 3: The Myths and "Spin" Coming from RFS Opponents
The Myths and “Spin” Coming from RFS Opponents • “The ethanol industry won’t share in demand rationing because of the RFS.” – “The RFS is an inflexible, inelastic demand driver that will suck up 5 b. bu. of corn no matter what.” – “The ethanol industry is insulated from the effects of high corn pric
Slide 4: The Facts: A Waiver is Not Necessary
The Facts: A Waiver is Not Necessary • Ethanol industry is already responding to high corn prices and reducing corn consumption – Production rate has decreased rapidly – Ethanol exports are decreasing – Blenders are drawing on robust ethanol stocks • Significant flexibility is built into the RFS: –
Slide 5: Ethanol Industry Response to High Corn Prices
Ethanol Industry Response to High Corn Prices • Since early June, industry has reduced corn consumption approximately 12% • Approximately 1.5 billion gallons of capacity idled – Roughly 26 ethanol plants idle – Many other plants operating well below capacity
Slide 6: Ethanol industry corn consumption down 12% from early June
Ethanol industry corn consumption down 12% from early June WEEKLY CORN CONSUMPTION BY ETHANOL PLANTS & CORN PRICE (IOWA) Corn Price, Iowa (Left Axis) Corn Use for Ethanol (Right Axis) $8.50 Annualized corn 98,000 Corn Use for Ethanol (thousand bu.) use = 5.02 bbu. $8.03 96,000 $8.00 Iowa Corn Price
Slide 7: Ethanol production has fallen to a 2-year low
Thousand bpd 1000 750 800 850 950 900 6/4/2010 7/2/2010 Source: EIA 7/30/2010 8/27/2010 9/24/2010 10/22/2010 11/19/2010 12/17/2010 1/14/2011 2/11/2011 3/11/2011 4/8/2011 Weekly Ethanol Production 5/6/2011 6/3/2011 7/1/2011 7/29/2011 8/26/2011 9/23/2011 10/21/2011 11/18/2011 WEEKLY ETHANOL PRODUCTION
Slide 8: Ethanol Stocks Hit Record Levels in March and Remain Slightly Heavy
Million Barrels 10.0 12.5 15.0 17.5 20.0 22.5 25.0 6/4/2010 Source: EIA 7/2/2010 7/30/2010 8/27/2010 9/24/2010 10/22/2010 11/19/2010 12/17/2010 1/14/2011 2/11/2011 3/11/2011 Ethanol Stocks 4/8/2011 5/6/2011 6/3/2011 7/1/2011 7/29/2011 8/26/2011 9/23/2011 10/21/2011 11/18/2011 20-Days Supply (Implied
Slide 9: Ethanol Exports and Imports Are Adjusting
Ethanol Exports and Imports Are Adjusting 2012 US ETHANOL IMPORTS-EXPORTS 90 80 70 74.8 71.2 60 65.4 64.9 50 MILLION GALLONS 40 42.5 30 US ETHANOL EXPORTS 31.2 20 US ETHANOL IMPORTS 10 NET EXPORTS 0 10 20 30 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Source: Dept. of Commerce
Slide 10: Demand Rationing in 2012/13
Demand Rationing in 2012/13 USDA’s latest projections show all end users will share in demand rationing 2012/13 Projected Corn Use (July vs. August estimates) Other Food, Seed, Feed/Residual + Dist. Grains Ethanol Exports Industrial 7,000 6,000 Distillers Grains, 1,633 Distillers 5,000 Grains, 1,500
Slide 11: Implications for 2012 RFS Compliance
Implications for 2012 RFS Compliance • Requirements for 2012: – 13.2 bg “renewable fuel” (corn/sorghum ethanol) • Will we meet 2012 RFS for “renewable fuel” given downturn in production? • YES, meeting the 2012 RFS won’t be an issue – Ethanol stocks & excess RINs will ensure compliance without undul
Slide 12: Meeting the 2012 RFS
Meeting the 2012 RFS • Actual refiner obligations are percentages of non-exempt fuel – Thus, they are somewhat lower than statutory volumes because of lower-than-projected gasoline/diesel use – Renewable fuel obligation is ~13.04 bg vs. 13.2 bg – Advanced biofuel obligation is ~1.97 bg vs. 2.0 bg •
Slide 13: Outlook for 2013
Outlook for 2013 • 2013 RFS statutory requirements: – “Renewable fuel” = 13.80 bg • 2013 Gasoline demand = 133 billion gallons (EIA) – Thus, 2013 E10 blend wall = 13.3 bg – Increased E15 use, but roll-out remains slow • High corn prices and reduced ethanol production levels through August 2013 will
Slide 14: Between RFS Flexibilities and Ethanol Stocks, there is a 1.3 Billion Bushel Cushion
Between RFS Flexibilities and Ethanol Stocks, there is a 1.3 Billion Bushel Cushion in 2012/13 Potential Effect of RFS and Ethanol Market Flexibilities on 2012/13 Gross Corn Use for Ethanol & Co-products 5,000 4,857 71 286 4,500 929 Latest USDA Estimate (4,500) 4,000 Million Bushels 3,571 3,500 3,00
Slide 15: The Real Effects of an RFS Waiver
The Real Effects of an RFS Waiver • Negligible reduction in corn price – A waiver would have little impact on corn price because of existing RFS compliance flexibilities and market responses – No discernible impact on retail food prices • Only minor decrease in ethanol output in short term – Demand
Slide 16: CARD Study: Waiving the RFS would not meaningfully reduce corn prices
CARD Study: Waiving the RFS would not meaningfully reduce corn prices in 12/13 CARD Study Results* No Full % • July CARD report simulates 2012/13 RFS RFS Change impacts of RFS waiver on markets 2012/13 Corn Marketing Year Waiver Waiver • Examined 500 scenarios with avg. corn yield ranging from 120-1
Slide 17: Some Context on Gas Prices
Some Context on Gas Prices • Gasoline prices are surging again – National average retail price up 11% since July 2 – Last week’s avg. ($3.72/gal.) highest since mid-May • RFS opponents attempting to blame drought for higher gas prices (higher corn prices ethanol prices) – Ethanol increased from ~$
Slide 18: Some Context on Food Prices
Some Context on Food Prices U.S. Food Inflation (Year-over-Year % Change) 14% 13% USDA: “Food price inflation is expected to 12% be close to the historical average this year 11% and just slightly above that next year.” 10% 9% 8% 7% 1990s = 2.8% 2000s = 2.9% 6% 5% 4% 3% 2% 1970s = 7.8% 1980s = 4.6% 1
Slide 19: Corn price is a trivial contributor to retail food prices
Corn price is a trivial contributor to retail food prices Corn is but one of many agricultural commodities…and ethanol is one of many price drivers for corn Source: USDA
Slide 20: What About the Rest of the World?
What About the Rest of the World? • Critics often suggest food price impacts of U.S. ethanol policy are disproportionately larger in poorer countries • U.S. corn and DDGS exports feed meat animals in developed countries, not humans in developing and Third World countries • U.S. ethanol policy has ne
Slide 21: The Corn Market is Global
The Corn Market is Global 2011/12 2012/13 Change % Change Million Metric Tons % U.S. production is estimated down U.S. 313.9 273.8 -40.1 -12.8% 12.8% from last China 192.8 200.0 7.2 3.7% year, but global Brazil 70.0 70.0 0.0 0.0% production is only EU-27 64.6 61.5 -3.1 -4.8% off 2.8%. FSU-12 33.7 32
Slide 22: Summary
Summary • Ethanol industry has quickly responded to higher corn prices by reducing production and exports – Ethanol producers WILL share in rationing demand • Obligated parties have flexibility in meeting RFS requirements – Ample ethanol stocks, surplus RINs will enable RFS compliance in 2012 and 20
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