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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Corn Industry Battered By Shocking Ethanol Decision

The Trump administration has tried to thread the needle between the corn ethanol and oil refining industries, as the two battle it out over federal policy. The EPA may have thought it came up with a balanced approach when it issued a series of recent decisions, but judging by market reactions, the agency seems to have decidedly come down on the side of oil over ethanol.

Federal policy requires a certain volume of biofuels to be blended into the nation’s fuel mix. Each year, the EPA decides on the exact levels, and it is a bit of a zero-sum game between ethanol producers and oil refiners. The ethanol industry wants higher blending levels because that expands sales, while refiners want less in order to defray costs.

While perennially at odds, the two industries were at a bit of standstill for much of the Obama administration because while both sides surely had their gripes, there at least was some predictability about government policy.

That all changed under the Trump administration, and specifically, under the stewardship of Scott Pruitt, former administrator at EPA. Under his tenure, EPA ramped up the number of waivers that it granted to the refining industry, absolving some smaller refiners of the requirement to buy ethanol who claim the obligation would inflict economic hardship.  

The move upset a fragile balance between the two industries, infuriating farmers and ethanol producers. The market for renewable identification numbers (RINs), which are the credits refiners can buy to offset their blending obligations, went haywire after the increase of waivers from EPA. The lack of policy clarity led higher volatility and lower prices for RINs, and politicians from farm states – allies of President Trump – demanded EPA stop issuing so many waivers. Trump tried to stay above the fray, fearing angering one side over the other, and told his lieutenants to hash out a compromise.  Related: China Prepares Its “Nuclear Option” In Trade War

Trump even proposed allowing the year-round sale of E15 – a higher concentration of ethanol that was off limits during summer months over air pollution concerns – as a way of making amends with corn and ethanol producers.

But the administration just issued a shocking decision to the corn and ethanol industries. On August 9, the EPA announced its decision on 2018 waiver requests, approving 31 of them while denying six. The decision appears to be an attempt to offer something to both sides, but the biofuels industry was incensed. “The Trump Administration’s approval of 31 refinery exemptions from the Renewable Fuel Standard is just devasting news for our industry,” said Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw in a press release. “With this action, President Trump has destroyed over a billion gallons of biofuel demand and broken his promise to Iowa voters to protect the [Renewable Fuels Standard].”

Ahead of the announcement, prices for RINs plunged to 11 cents, down from 20 cents a day earlier, according to Argus. “At a time when ethanol plants in the Heartland are being mothballed and jobs are being lost, it is unfathomable and utterly reprehensible that the Trump Administration would dole out more unwarranted waivers to prosperous petroleum refiners,” Geoff Cooper, CEO of Renewable Fuels Association, said in a statement, calling the EPA decision a “total shock.”

Refiners, on the other hand, welcomed the decision. “Capital planning is difficult without knowing whether your refinery needs to set aside millions of dollars for RIN purchases,” the Small Refiners Coalition said. “The decision to grant small refinery hardship is a legal decision, not a political one.”

For farmers, the hits keep on coming, and EPA’s decision is merely the latest in a series of blows from Washington. The U.S.-China trade war has battered the U.S. Midwest, as farmers have all but lost access to the Chinese market. China has turned to Brazil for ethanol and for soybeans. Prices for U.S. soybeans, corn and other agricultural commodities have plunged. Related: Low Solar Panel Prices Spark Surge In Adoption

More recently, corn prices rebounded, but only because the Midwest was soaked in record-breaking floods that threatened corn plantings. However, the latest data from the U.S. Department of Agriculture shows that yields are not expected to be as hard hit as previously expected – normally good news, but higher-than-expected supply sent corn prices tumbling all over again. On Monday, corn futures fell by the “limit down,” or the maximum allowed before trading is cut off.

Futures prices for corn-based ethanol plunged to a five-year low for the time of year, falling to $1.27 per gallon on Wednesday, down roughly 25 percent since June. “The Trump administration has totally annihilated the margins for ethanol producers,” Charlie Sernatinger, head of global grains futures with ED&F Man Capital Markets, told the Wall Street Journal.

Meanwhile, the U.S.-China trade war is in danger of escalating, despite the decision by Trump to hold off until December. The Trump administration has offered payouts as compensation to farmers hit by the trade war, but financial stress in the agricultural sector is growing. Bankruptcies are rising sharply.

Inflicting so much pain on a key political constituency seems risky, although it’s unclear if there will be a change in policy on either the trade war or on ethanol. Farmers were clearly on Trump’s mind Thursday morning.

Our Great Farmers know how important it is to win on Trade. They will be the big winners!

By Nick Cunningham of Oilprice.com

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Leave a comment
  • Gogo Bobo on August 16 2019 said:
    Strike gasoline to E5 only- selling corn to Haiti & other subtropical starving countries with marginal economies. In turn, start industries there growing jatropha curcas to produce biodiesel for US & other regional indigenous markets.
    Gasoline drops to $1.00/gallon, starving countries are fed better with corn feed for livestock & cereal for children. US air quality is vastly improved with gross polluting expensive petrodiesel replaced with B35. Jatropha curcas B100 is
  • Bilt Millt on August 16 2019 said:
    Good, Ethanol is terrible for engines and fuel systems.
  • Erasmus Dragon on August 17 2019 said:
    Some people should be learning a lesson for putting the mad man in the Oval Office that you can't trust this guy.

    This guy does stuff randomly without care for collateral damage.

    The ethanol industry and the corn industry have had collateral damage done and those most involved in both industries are highly responsible for putting the mad man where he is.

    I'm a consumer of both industries and I hate your product for what it does to my automobile.

    The laws you've helped put in place that force me in certain states to consume ethanol-tainted gasolin are not cool. It is not free-market.

    Ethanol blended gas ruins my fuel mileage.

    I buy pure no-ethanol gasoline whenever I can, don't even look at the price, thank the lord I don't live in a corn state.

    This might be the only thing the prez has done that I agree with besides pulling out of the TPP trade agreement.

    Everything else he's done has been random damage to something good about the USA.

    This was a good call.

    Sorry about your pain but you brought it on yourselves.
  • Jim Scott on August 17 2019 said:
    If you pay taxes and buy groceries, every time you insert the nozzle to fill your tank with ethanol-blended fuel, you get hosed six ways.

    Federal crop subsidies and ethanol mandates shower tax and household dollars on corn growers and ethanol refiners to produce a product we are forced to purchase, that increases fuel prices, provides less energy for our money, adds water to our gas tanks, raises food prices, and degrades the environment.

    Get that poison out of our fuel.
  • Bill Simpson on August 19 2019 said:
    You can count the number of farmers who voted for Hillary Clinton on one hand. They basically elected, 'The Donald', the TV King of Bankruptcy, to get out of paying his just debts.
    How is he working out for you guys?
  • Proudly Unaffiliated on August 19 2019 said:
    Ditch the ethanol in fuel altogether. It was always a scan to pillage from the American middle class. Let's see: we pay to subsidize corn growers, then we mandate the use of ethanol in gasoline, thereby raising the price at the pump and (any chemists out there?) ensuring we get less fuel efficiency than with pure gas. As if that perfidy was not enough, the ethanol is hydrophillic, thereby sucking water into the fuel from the atmosphere and helping to corrode the inside of engines. This particularly applies to anything that has a carburetor, like may motorcycles and such. Old cars are screwed, blued, and tattooed.

    Does anyone know why we did this other than to create more waste, fraud, and abuse?
  • Randy Peterson on August 20 2019 said:
    The government should allow ethanol made from other sources to compete. Right now, ethanol has to be made from CORN to be included in gasoline to reduce smog. You can make ethanol from petroleum. Ethanol is ethanol.

Leave a comment




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