2. 2019 Corn-Ethanol Situation & Outlook
Fergus Falls, MN
February 26, 2018
David Ripplinger

3. The Economy

4. Key Factors
The US economy is strong, growing, and expected to do so for the next few years. There is little indication of inflation or recession.

5. Unemployment

6. Wages and Income

7. Consumer Price Index: All

8. Consumer Price Index: Energy

9. Housing Prices

10. Consumer Sentiment

11. S&P 500

12. GDP

13. Interest Rates

14. Exchange Rate

15. Vehicle Miles Traveled

16. Fuel Economy of New Passenger Vehicles
Source: Bureau of Transportation Statistics

17. Crude Oil

18. Key Factors Record and increasing US production
Changing global crude flows
Prices supportive of continued US development and strong domestic consumption

19. US Crude Oil Production
Source: Energy Information Administration

20. US Crude Oil Refinery Inputs
And capacity
Source: Energy Information Administration

21. US Crude Oil Trade
Source: Energy Information Administration

22. US Crude Oil Stocks & WTI Spot Price
Bakken
WTI
Brent
Source: Energy Information Administration

23. US Corn

24. Key Factors Weaker than expected ethanol grind
Increased plantings (91 mln vs 89.1 mln in ‘18)
Strong exports
Tight stocks by end of marketing year

25. US Corn S&D

26. US corn-Ethanol

27. Key Factors Excess refining capacity Stable US ethanol demand
Stable and increasing export demand

28. Corn-Ethanol
2.8 gallons of ethanol 17 lbs of distillers grains .6 lbs of corn oil
Yields
kernel

29. US Corn-Ethanol Margins
USDA/AMS Minnesota Prices 2/25/19 $132.5/ton dried distillers grain 25¢/pound corn oil $1.19 per gallon $3.52/bushel #2 yellow corn 1.19(2.8)+.25(.6)+132.5(17/2000)-3.52 =$1.08

30. Fuel vs. Fuel Additive
Nearly all ethanol sold in the United States is blended with gasoline (E10). In these cases it is being used as a fuel additive, in this case oxygenate, not as a fuel (energy source).

31. Aromatics Prices
Including ethanol

32. US Corn-Ethanol Production
/Capacity

33. US Corn-Ethanol Trade
Imports

34. US Corn-Ethanol Export Markets 2018

35. Brazilian Sugar-Ethanol
Brazilian sugar mills regularly change the proportion of sugar or ethanol they make based on the relative prices of the two products.

36. The RFS

37. The RFS
The Renewable Fuel Standard (RFS) mandates minimum use of biofuel by type and year. Obligated parties are required to blend a certain amount of biofuels proportional to their size or trade for permits from those who did. Small refiners, those who refine 75,000 bbls/d, that are underdoing extreme economic hardship may apply a waiver.
It’s actually two laws the RFS (2005) and the RFS2 (2007)

38. Hardship Waivers The EPA under Scott Pruitt waived
19 of 20, 2016 waivers – 790 million gallons
29 of 33, 2017 waivers – 1.46 billion gallons
These 2.3 billion gallons would have used 800 million bushels of corn and 5 million acres of cropland.

39. Considerations

40. Export Development
US agricultural interests heavily support the development of export markets for corn-ethanol. This included $14 million in new funds provided as part of the Administration’s response to the trade dispute with China.

41. Chinese Ethanol
China announced in 2017 that it would mandate an 10 percent ethanol blend by Chinese gasoline use is approximately 1/3 that of the United States. It would need about 4 billion gallons of ethanol or 1.2 billion bushels of corn (10% of the US corn crop) to meet this mandate.

42. Chinese Ethanol
Little has been done to grow out the Chinese corn-ethanol industry ethanol imports were smaller than expected in part due to the trade dispute with the United States.

43. RFS Rectification
Will EPA regain control of the RFS and the small refinery waiver process, re-instilling integrity in the RIN market? Will it enforce the statutory 15 billion gallon per year conventional biofuel mandate?

44. Market Manipulation
Concerns of market manipulation have been raised in the primary US corn ethanol benchmark.

45. E15
All vehicles made since 2001 are able to use E15. However, its use is prohibited in some parts of the country during the summer. EPA is currently working to allow year-round E15 use.

46. Beyond E15
Higher octane aka “Super premium” gasoline (E20 to E30) is more fuel efficient than regular or premium gasoline. Introduction of super premium fuels and vehicles with the engines to use it would dramatically increase ethanol use, if that were the source of octane.
Super Octane

47. Petroleum-based Aromatics
The dramatic increase in US petroleum reserves and production may result in increasingly large amounts of more affordable petroleum-based oxygenates. Could these aromatics replace ethanol not only at E10, but at even higher levels?

48. Changing Fleet Composition

49. Low Carbon Fuel Standard
California has a functioning low-carbon fuel standard that includes a cap-and-trade system to manage carbon emissions from automobiles. Carbon was trading last week at $190/ton, this is enough to incentivize many carbon-reducing fuels. This is equal to $.30/gallon of ‘low-carbon intensity’ corn-ethanol.

50. Low Carbon Fuel Standard
Low Carbon Fuel Standards are causing many corn-ethanol refineries (and other fuel refineries) to revisit their plant designs and inputs, and in many cases invest in carbon-reducing technologies.

51. Decarbonization
There is interest in decarbonizing parts of the economy. In transportation, this would take the form of electrification, that is the replacement of the internal combustion engine with an electric motor. This would have dramatic impacts on ethanol and petroleum products.

52. Summary
In the United States, ethanol is used primarily as a fuel additive, not a fuel. Hardship waivers have severely disrupted the US corn ethanol market. Export growth and E15 would alleviate capacity issues.

53. Questions
Contact Information: David Ripplinger