KISSIMMEE, Fla. — U.S. corn demand could soon get hung up on the ethanol blend wall speed bump, according to analysts.
U.S. drivers are expected to consume 134 billion gallons of fuel in 2012-13. Refiners typically blend ethanol at a 10 percent (E10) level resulting in 13.4 billion gallons of ethanol demand.
The problem is that the U.S. government has mandated 13.8 billion gallons of corn ethanol use in 2013.
“We’re bumping right up against the blend wall,” Chip Flory, editor of Pro Farmer said during an interview at the 2013 Commodity Classic.
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The shortfall will likely be met by sales of E15 and E85 blends in 2013, but things will get tricky in 2014 when the mandate expands to 14.4 billion gallons and 2015 when it reaches 15 billion gallons.
Arlan Suderman, senior market analyst with Water Street Advisory, said that is when the wall will start limiting the upside for corn prices.
Chad Hart, associate professor of economics at Iowa State University, agreed the time is coming when the blend wall will have a big influence on corn markets.
Future mandates will force blenders to use up their stored renewable identification number (RIN) credits.
A RIN is a paper credit blenders earned in previous years when they blended more ethanol than they were obligated to under the federal mandate.
They can use those credits to meet current obligations without actually blending the ethanol. Hart estimates blenders are holding 2.5 to three billion gallons worth of RINs.
“You’re pulling some (corn) demand away as the RINs get utilized,” he said in an interview separate from the Commodity Classic event.
“Does it put in a hard ceiling (on corn prices)? No. But it does soften the upside.”
A shift to E15 blends would eliminate the blend wall concern in the corn market. The EPA has approved the blend but few fuel retailers have installed E15 pumps and consumers are wary about gassing up with E15 fuel.
“We’ve told our consumers for the past 30 years that a 10 percent blend was about as much as their car could handle,” said Hart.
“Now we’re going to turn around and say, ‘forget that, 15 percent is as much as your car can handle.’ That’s going to take some time for consumers to be willing to test that.”
