The Trump administration announced a major policy change in an effort to win back farm country, allowing the year-round sale of a higher concentration of ethanol.
Coinciding with a campaign stop in Iowa, President Trump announced the lifting of the ban of E15 during summer months, a significant win for the corn and ethanol industries. Up until now, E15 cannot be sold during the summer because of smog concerns. Ethanol producers saw their share prices skyrocket on the news.
The decision comes after roughly 18 months of damaging policies to the agricultural industry. Former EPA Administrator Scott Pruitt became public enemy number one for the ethanol industry last year, even as many people in agriculture-heavy states supported Trump, as Pruitt’s agency repeatedly undermined the market for ethanol.
The EPA increased the number of waivers it granted to oil refiners last year and this year, reducing their obligations to buy and blend in corn ethanol into their fuel mixes. Not only did the waivers reduce demand for ethanol, but the prices for credits that are bought and sold in lieu of blending requirements also suffered steep losses, undermining the whole market. The ethanol credits, known as renewable identification numbers (RINs), saw their prices plunge to a five-year low, down from over $1 last year to only 12 cents today.
There has been a long-term rivalry between ethanol producers and oil refiners, and the problem for Trump is that there is somewhat of a zero-sum game between them in terms of federal policy. Oil refiners are obligated to blend a certain volume of ethanol, but have repeatedly tried to undermine those requirements. The corn and ethanol industries have fought to maintain the federal blending requirements. Any movement in either direction comes at the expense of the other. Related: What’s Next For Oil Prices?
The simmering tension was more or less bottled up for many years because federal policy didn’t change much. The two industries still lobbied against each other, but the battle was confined to the specifics of the annual blending requirements, not a broader war for wholesale policy changes.
That changed when the EPA began stepping up the number of waivers it granted to refiners, which undermined the RIN market and sparked a much more contentious fight. After repeatedly siding with oil refiners, particularly when Pruitt was at the helm of the EPA, the Trump administration is now trying to patch up the rift it created with farmers.
This is an especially important political exigency since the Trump administration has also hit the Farm Belt in another arena. The trade war with China has led to Chinese tariffs on American soy, corn, wheat, cotton, rice, sorghum, beef, pork, poultry, fish, and dairy products.
China is such a huge market for American farmers, and the tariffs have led to painful declines in prices. Soybean prices have declined more than 20 percent and corn prices are down more than 10 percent since the trade war began earlier this year. Related: Goldman: The Oil Market Can Handle Iran Outages
Between the trade war and the plunging price for farmers have grown a little wary of the Trump administration.
Trump has tried to straddle both the corn and oil industries, and his top officials have tried to broker a compromise for much of the past year. Several times, they appeared on the verge of some policy reform that offered wins to both sides, but had to back down because one side or the other felt they received the short end of the stick.
The E15 announcement on Tuesday was well received in the Farm Belt, but oil refiners are not happy. The proposed reform by the Trump administration will seek to curtail hoarding of RIN credits, an attempt to mollify refiners who say speculative trading drives up the cost of compliance. However, it wasn’t enough to bring refiners on board. “The president has promised to broker a deal to reform the [Renewable Fuels Standard] that works for all stakeholders. This isn’t it,” Chet Thompson, chief executive of the American Fuel and Petrochemical Manufacturers, said in a statement.
The battle between corn and oil clearly isn’t over.
By Nick Cunningham of Oilprice.com
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