If livestock and poultry producers thought the blending of ethanol into fuel would stop at 10% of gasoline consumed, leaving them with the rest of the corn market, they were mistaken.
The current Environmental Protection Agency mandate for ethanol production pierces that “blend wall,” the point at which further concentrations begin to harm many engines and where many have advised the EPA to stop its mandate for production and use.
A fuel mix of 10% ethanol to 90% gasoline is commonly considered to be the blend wall, and some small engines require ethanol-free fuels. Use of higher ethanol concentrations actually voids some warranties.
Federal law has not kept pace with the reduced demand for gasoline, necessitating a bill in the House of Representatives that would limit ethanol blended into motor fuels to 9.7% of projected gasoline demand as determined by the US Energy Information Administration.
Congressman Bill Flores (R-Tex.), one of four authors of the bill, was quoted by the Oil and Gas Journal saying, “Market conditions have dramatically changed since 2005 and 2007, when Congress created and subsequently expanded the RFS (Renewable Fuel Standard). Since that time, gasoline demand has fallen and is well below the volumes implied by the ethanol mandates in the 2007 statute.”
THE BLEND WALL
Corn is ground and distilled into ethanol, and the mandate to use a specific number of gallons of ethanol as fuel creates a certain level of artificial demand.
In November, the EPA mandated 18.1 billion gallons of renewable fuels to be blended into gasoline and diesel fuels for use in US engines in 2016. This is about 7% higher than in 2015 and more than 10% of this year’s expected gasoline production, according to the Institute for Energy Research.
“In other words, 18 billion gallons of ethanol is over the 10 percent blend wall,” the Institute for Energy Research said. “The problem with exceeding the blend wall, or even just reaching it, is that many automobile manufacturers will not warranty vehicles that use more than 10% ethanol and many small engines (e.g. lawn mowers) also limit ethanol mixtures and actually prefer pure gasoline.
“For that reason, it has been recommended that the renewable fuel share not exceed 9.7%,” the IER said. “But, EPA ignored that recommendation in setting the renewable fuels share for 2016, which is at 10.1%.”
EFFECT ON PRODUCERS UNKNOWN
The federal mandate to blend ethanol into gasoline, touted as a way to stretch US fuel supplies and to decrease emissions of atmospheric pollutants, is pushing the price of feed for livestock and poultry producers. Most US ethanol is made from corn, the preferred feed of cattle, hog and poultry producers, and the federal law requires the use of about 6.464 billion bushels of corn.
However, just how much that mandated demand is costing livestock and poultry producers is unknown, since it’s impossible to tell how much domestic and export demand might have been generated without it.
CASH CATTLE MARKET QUIET
Cash cattle markets remained quiet Tuesday, with few bids or offers seen. Cash markets last week traded $1 to $2.50 per cwt higher at $116 to $117.50 on a live basis and $186 to $188 dressed.
The USDA’s choice cutout Tuesday was $0.70 per cwt higher at $198.40, while select was up $1.24 at $191.46. The choice/select spread narrowed to $6.94 from $7.48 with 88 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Monday was $145.12 per cwt, up $0.15. This compares with the Aug settlement Tuesday of $145.47, up $0.92.