6) There is some upside potential for corn ethanol use in the mainly E85 scenario by 2015, as much as 700 million bushels compared to what is projected under the advanced and renewable write down alternative. The upside, however, is limited due the assumed maximum ethanol production capacity for the U.S. of 15.2 billion gallons. Overall, the implications are moderately positive for the corn market.
The EPA surprised many observers when it recently announced proposed 2014 volumes for the RFS mandates. The new EPA framework for implementing the mandates is keyed to the E10 blend wall and the proposal includes a write down of the corn-based ethanol mandate for the first time. Not surprisingly, this policy change is highly controversial and the novel legal argument used to justify the write down is likely to be challenged in court. If the proposed EPA rules are finalized and survive a court challenge, then blend wall problems generally will be resolved, the RINs market will likely return to pre-2012 price levels, and pressures in grain and oilseed markets will be largely abated. If on the other hand the EPA rules are eventually overturned, then blend wall problems will return in short order, RINs stocks will likely be exhausted by the end of 2014, RINs prices will soar once again, and pressure on the grain and oilseed markets will in all likelihood resume. Much hangs in the balance on the outcome.