The mini-blizzard in the Midwest knocked down out Internet towers, and it was kinda sad how Jan and I clutched our backup access (via smartphones) while it was being fixed. Meanwhile the computerized mixer on the church sound system also crashed and that is my responsibility, so I've been occupied.
Christmas cookie consumption also played a part.
But some readers offered these interesting tidbits.
From Kevin in Ontario, this bizarre story of gaming the RFS....by Canadians!!
Bioversel Trading hired CN Rail to import tanker loads of biodiesel to the U.S. to generate RINs, which are valuable in the U.S. because of a "greening" policy regulating the petroleum industry. The EPA's "Renewable Fuel Standard" mandate that oil companies bring a certain amount of renewable fuel to market, quotas they can achieve through blending biofuel with fossil fuel or by purchasing RINs as offsets.Ah yes, ethanol - The American farmer's ACORN. What can I say, except I am shocked - shocked, I tell you - our mild-mannered neighbors to the north would take advantage of a dismally market-distorting subsidy program just like they were 'Mericans.
Because RINs can be generated through import, the 12 trainloads that crossed into Michigan would have contained enough biodiesel to create close to 12 million RINs. In the summer of 2010, biodiesel RINs were selling for 50 cents each, but the price soon fluctuated to more than $1 per credit.
Once "imported" to a company capable of generating RINs, ownership of the biodiesel was transferred to Bioversel's American partner company, Verdeo, and then exported back to Canada. RINs must be "retired" once the fuel is exported from the U.S., but Bioversel says Verdeo retired ethanol RINs, worth pennies, instead of the more valuable biodiesel RINs. Bioversel claims this was all perfectly legal.
However, one of the companies Bioversel approached to be the ‘importer of record’—Northern Biodiesel Inc. of Ontario, N.Y. — discovered that the same fuel was going back and forth across the border and the same gallons were being used to repeatedly generate new RINs under their company’s name. The company called the EPA and also sent a letter that would become an open letter to the biodiesel industry, accusing Bioversel of “trying to perpetrate a fraud against NBI and the Renewable Fuel Standard program.”
The EPA, which has a buyer beware policy for oil companies that buy RINs, did not act immediately, and the industry has been begging for it to play the role of sheriff on this case and others. The EPA won’t comment on continuing investigations, but insiders said the case is still under investigation. [More of a great investigative story]
However, due to changes in the RFS, there may be more "Dakota shuffles" in the future.
The 2012 drought led to significant increases in corn prices and a slowing in domestic ethanol production and exports. For the first time since the RIN system was established, it is estimated that 2012 net RIN generation will not exceed the non-advanced ethanol mandate, and RIN stocks carried over from previous years will be used for mandate compliance. This was reflected in 2012 ethanol RIN prices, and illustrates how the design of the system can be used by obligated parties to respond to variability in the economics of ethanol blending. Current estimates indicate continued flexibility for corn-for-ethanol demand to meet the 2013 non-advanced mandate, but at lower levels than in previous years due to estimated stock use in meeting the 2012 mandate. [More]
They are not the only neighbor to benefit from this intricate mandate.
So what is driving the large ethanol imports from Brazil? The answer is found in the details of the U.S. Renewable Fuels Standards (RFS). Brazilian sugarcane ethanol production qualifies as an "advanced" biofuel under the RFS greenhouse gas (GHG) calculations. (See our earlier post for further details.) This means that the relevant economic comparison is between Brazilian ethanol and other biofuels that qualify for the advanced component of the RFS. Since the corn-based ethanol has a less favorable GHG reduction rating, it only qualifies as a "renewable" biofuel, and therefore, cannot compete with Brazilian ethanol or other advanced biofuels to fulfill the advanced mandate. To date, the only other biofuel that has been produced in quantity and qualifies to meet the advanced component of the RFS is biomass-based biodiesel. This means the relevant economic comparison is whether U.S. produced biodiesel or Brazilian produced sugarcane ethanol is the cheapest source for fulfilling obligations under the advanced RFS.Meanwhile, back here in the home country, the impact of our inability to spin straw into ethanol means we have only piddling amounts of advanced biofuels to meet the mandate. But what about biodiesel, the Great Hope of soybean producers?
Recent price data reveals that Brazilian ethanol is by a wide margin the cheaper of the two alternatives. For example, consider a U.S. energy producer that is faced with this data on gasoline and diesel blending economics on November 29, 2012:
where CBOB is conventional gasoline blendstock, E100 is 100 percent anhydrous ethanol shipped to a Gulf terminal from Brazil (same as before), ULS is ultra low sulfur diesel, and B100 is 100 percent biodiesel. One final conversion must be done to make a fair comparison. Since biodiesel is worth 1.5 gallons of ethanol in the RFS math, we need to divide the net profit for diesel blending by 1.5 to arrive at a net profit of -1.05/1.5 = $-0.70 per gallon. This makes biodiesel almost twice as expensive as imported Brazilian ethanol when it comes to meeting the advanced RFS mandate. And that is the reason why Brazilian ethanol imports are surging into the U.S. during recent months. They will continue to do so until the non-biodiesel part of the 2012 advanced mandate is met (about 500 million gallons total) but will not be higher since blenders are still taking a loss on each gallon of Brazilian ethanol imported. [More]
The biofuels era that began in 2006 helped propel corn and other crop prices to a new higher level that has been sustained for nearly six years. One might be tempted to conclude that this new era is coming to an end as corn consumption for ethanol levels out and corn production begins to catch up. Instead, it actually appears that the new era of higher crop prices could be extended well into the future as a result of the RFS for advanced biofuels that in all likelihood can only be met with a rapid expansion in biodiesel production. To gain some perspective on the potential size of this expansion, consider our projection of 3.113 billion gallons of biodiesel production in 2015. This would require about 23.5 billion pounds of feedstock when total consumption of fats and oils in the U.S. currently totals about 28 billion pounds annually. Consumption of tallow and grease, another biodiesel feedstock, is thought to be near 10 billion pounds per year. At the projected level for 2015, biodiesel would account for over 60 percent of fats and oils consumption from all sources. This compares to about 20 percent in in 2012. The new price era, then, would not be extended by rising corn demand, but by rising vegetable oil demand. Whether this scenario actually is realized depends crucially on the evolution of biofuels policy here in the U.S. and energy policies in Brazil. We will be monitoring these issues closely in the future. [More]But if we make much of that from soya, what about the rising global demand for soyoil?
Global demand for vegetable oils for food and biofuel use is expected to increase by an additional 23 million tons by 2016; however supply is expected to struggle to keep up with the demand, according to a new report from Rabobank.Now add in the migration of the Corn Belt north, and maybe the smart move in my part of the world is to plant a heckuva lot of beans on those CoC acres instead of continuing to pound our head against the production barriers that are more serious than we thought when triple-stacks gave us a couple of penalty free yields.
According to the report, “Finding the Food-Fuel Balance," vegetable oil stocks reached a 38-year low in 2012 due in large part to constraints, such as land availability and adverse weather. For the past four years, the world’s stock-to-use ratio for vegetable oils has been on a declining trend and will reach a low of 7.5% in 2013, a level not seen since the mid 1970s. The decline is largely down to supply’s inability to keep up with rising demand. Production shortfalls in recent years have resulted in a draw-down of stocks that is unlikely to be reversed in the near future. [More]
Corn’s new appeal to Canada’s prairie farmers is based on two things: climate change and price. Growing seasons in the prairie provinces—which border Minnesota, North Dakota, and Montana—have lengthened about two weeks to up to 120 days in the past half-century. The mean annual temperature is likely to climb by as much as 3C (6F) in the region by 2050, according to Canadian researchers.It is in-your-face developments like new yield patterns that will change attitudes about global warming, certainly not mere science. And I think those minds who have the freedom to actually to contemplate the implications without cognitive dissonance from their political catechism will enjoy a distinct business advantages.
A temperate climate and longer growing season are ideal for corn. An acre of farmland produces more corn than wheat, making corn the more profitable grain, while the higher yields drive up land values as well.
Corn has long grown in southern Ontario’s mild climate, but for Canadians to be big players in the crop at a new order of magnitude, they must plant in the vast farmland of the prairie provinces. Farmers planted a record 121,400 hectares (300,000 acres) of corn in Manitoba, Saskatchewan, and Alberta this year.
Global corn demand has outstripped supplies three of the last four years. That shortfall, along with the more hospitable growing weather and the introduction of seed varieties from Monsanto (MON) and DuPont (DD) that make plants mature faster, is transforming Canada’s grain mix, says Danny Blair, a professor of geography at the University of Winnipeg. “The winters have warmed and shortened dramatically,” accompanied by more rainfall that allows for earlier planting and greater soil moisture that helps crops.
Global warming will increase the frequency of drought and erratic rainfall even in Canada, says Blair, who notes that the weather creates more opportunities for Canadian agriculture, despite the risks. The anticipated boom in corn is encouraging U.S. agribusiness giant Cargill to invest in grain storage in Canada, according to Chief Executive Officer Gregory Page. The prospect of new demand from Canadian corn farmers is pushing DuPont Pioneer, a seed division of DuPont, to improve its short-season crop varieties, says John Soper, the company’s vice president of crop genetics research and development. [More]
Rolling all these ongoing developments into 2013, add the incredible political turmoil in the US, include the ongoing drought, and we have the possibility of a year that makes 2012 seem tame.
This also mean incredible rewards for those who step up to the challenges, IMHO.
Just hope they don't farm near me...