The U.S. ethanol industry is unlikely to spark another run-up in grain prices, says a market analyst.Ethanol proponents are seeking approval from the U.S. Environmental Protection Agency to blend up to 15 percent ethanol (E15) in gasoline from the current cap of 10 percent (E10).The EPA has committed to rule on the request this summer.A favourable ruling for the ethanol industry could have a dramatic impact on U.S. corn demand, which would drive up prices for corn as well as for crops such as wheat and soybeans that compete with corn for acreage.The U.S. Congressional Budget Office estimated that the increase in corn demand caused by ethanol mandates boosted prices by 50 to 80 cents US per bushel between April 2007 and April 2008.Joe Victor, vice-president of marketing with Allendale Inc., a U.S. commodity research advisory firm, said a 50 percent increase in the allowable blending rate would prop up prices.However, after speaking to a senior U.S. Department of Agriculture official involved in the corn ethanol side of agriculture, Victor is skeptical that the industry will get everything it wants.“Are we going to go from E10 to E15? The contact is telling me, ‘no.’ ”He said it is more likely that the blend rate will increase to E11 or E12.The EPA sent a letter last November to Growth Energy, the ethanol group that made the E15 request, stating that it would be in a position to approve E15 for vehicles manufactured since 2001 by mid-2010 if its engine tests remain supportive.Patricia Woertz, chief executive officer of Archer Daniels Midland, one of the largest ethanol producers in the United States, recently said she would rather see an 11 or 12 percent blend applied to all vehicles rather than a system where only newer cars can use E15.Other groups are encouraging the EPA to postpone its decision.The Alliance of Automobile Manufacturers, the American Petroleum Institute and the Outdoor Power Equipment Institute said the preliminary results of their engine tests haven’t proven that higher levels of ethanol are safe or effective. They want the EPA to delay its decision until those tests are complete in 2011.Growth Energy argues the automobile and oil industry tests are incomplete and ignore the “pile of data” it submitted to the EPA proving an E15 blend is not harmful.Victor said even if the EPA decides this summer, it won’t affect grain prices until 2011 because it will take a while to implement whatever new blend the agency approves.A one percent increase in the amount of corn used for ethanol would create a new market for 46 million bushels of the crop, according to the numbers contained in the USDA’s World Agricultural Supply and Demand Estimates report.“That extra one percent blend is definitely going to be price supportive for this market,” Victor said.The impact on prices would grow exponentially if the EPA approves a higher blend.
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