As a severe drought shrinks the expected US corn harvest, the market should not take it as a given that the Environmental Protection Agency will lift this year's ethanol mandate, a Bank of America Merrill Lynch analyst said Monday, pointing to ample storage, exports and renewable fuel credits.
The prospects of an extremely poor harvest have sent corn futures past $8/bushel to record highs, driving ethanol producers to curb their output while also amplifying calls from livestock groups for cuts in EPA's Renewable Fuel Standard requirement for refiners to blend 13.2 billion gallons of ethanol into the US motor fuel supply in 2012.
Analyst Kevin McCarthy said that while a waiver is possible, it should be seen as less likely, given four factors: EPA's refusal to grant a waiver in 2008 when corn prices approached $8/bushel; ethanol storage volumes sitting at a relatively high level of 800 million gallons; the US being on pace to export 700 million gallons of ethanol; and the current surplus of 2.5 billion renewable identification numbers (RINs) -- credits that refiners use to prove compliance with the fuel mandate.
"In any event, action before the US election appears quite unlikely," he said in a research note.
