Extension and Outreach/Department of Economics Possible Changes to the Renewable Fuels Standard Iowa Farm Bureau Federation Policy Information Conference West Des Moines, Iowa Feb. 21, 2012 Chad Hart Assistant Professor/Grain Markets Specialist

Extension and Outreach/Department of Economics Disclaimer  The views expressed in this presentation are strictly the views of Chad Hart

Extension and Outreach/Department of Economics H.R. 3097, Renewable Fuel Standard Flexibility Act  Tie conventional biofuel standard to the corn stocks- to-use ratio  Estimate ratios on Aug. 1 and Nov. 30 Stocks-to-use RatioReduction in Conventional RFS Above 10%No adjustment 7.5 to 10%10% 6 to 7.49%15% 5 to 5.99%25% Below 5%50%

Extension and Outreach/Department of Economics H.R Timing  Two years of possible impacts  August value will affect conventional standard for current year  November value will affect conventional standard for upcoming year

Extension and Outreach/Department of Economics H.R Other Features  Standard reductions do not apply to advanced biofuels  No conventional biofuels can be used to meet the advanced biofuel standard

Extension and Outreach/Department of Economics Renewable Fuels Standard (RFS)

Extension and Outreach/Department of Economics Renewable Fuels Standard (RFS) Crop Year Billion Bushels

Extension and Outreach/Department of Economics Historical Corn Stocks-to-Use

Extension and Outreach/Department of Economics Historical Corn Stocks-to-Use

Extension and Outreach/Department of Economics Historical Triggers YearNovRFS Change JulyRFS Change %15%3.73%50% %10%16.25%0% %10%10.50%0% %0%8.69%10% %10%10.00%10% %10%14.79%0% %15%6.61%15% %15%???

Extension and Outreach/Department of Economics Production vs. Conventional RFS

Extension and Outreach/Department of Economics Oil Prices

Extension and Outreach/Department of Economics Oil Prices

Extension and Outreach/Department of Economics Ag and Energy Markets

Extension and Outreach/Department of Economics Ethanol Blending Advantage

Extension and Outreach/Department of Economics Iowa Corn Prices vs. Costs

Extension and Outreach/Department of Economics H.R Effects  Historical analysis shows conventional RFS reductions would be triggered roughly 1/3 rd of the time  But the more important question is whether is the RFS is binding at the time  If it is not, there is no effect from the reduction  Since the RFS has been in place, the only time it may have been binding was for a couple of months during the recession when energy, specifically oil, prices were low

Extension and Outreach/Department of Economics H.R Effects  Given the current outlook for oil prices, the future likelihood of the conventional RFS binding is very low  Thus, I would expect little to no impact from H.R  But there are two scenarios where H.R does impact the crop markets 1.In combination with a recession, depressing already lower crop prices 2.A combination of low oil and high corn prices, driven by a significant crop production shortfall

Extension and Outreach/Department of Economics Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: