Earlier this month I wrote about the struggles of North Dakota’s ethanol industry due to actions taken by the Trump administration to waive mandates from the federal Renewable Fuels Standard.
Those mandates require refiners to blend a certain amount of ethanol into the fuels they sell. Refiners don’t like that for various reasons, not the least being that most of them are vertically integrated with oil producers, meaning the RFS ethanol mandates amount to a requirement that they displace some of their own product with something they purchase from someone else.
Ethanol producers love the mandate because it requires refiners to purchase their product. Corn growers also love the mandate because almost all ethanol produced in the United States is made from corn. Our nation’s largest cash crop.
What’s a little scary is just how much of a house of cards this all is. My previous post highlighted some groaning from regional ethanol producers because of the mandate waivers, but in Iowa, a biofuel facility has actually shut down because the government-mandated demand for its product is drying up:
An Iowa biodiesel plant announced Tuesday it’s shutting down as Gov. Kim Reynolds warned that federal waivers exempting oil companies from using renewable fuels are hurting the state’s rural economy.
“We continue to see farmers that are impacted,” Reynolds said at a weekly meeting with reporters. “We continue to see ethanol plants that are being idled…
Roy Strom, CEO of W2 Fuel, said Tuesday he is closing the company’s 10-million gallon biodiesel plant in Crawfordsville in southeast Iowa, along with a plant in Michigan, given growing losses.
I don’t doubt for a second that Trump’s rollback of the RFS mandates is hurting the ethanol/biofuel industry and, by extension, farmers.
Can we pause here to recognize how foolish it was to tie this crop-to-fuel enterprise, this increasingly large segment of America’s agriculture industry, to a market which primarily exists because the government says it must be so?
As I noted in my previous post, in 2018 some 5.6 billion bushels of corn was used for ethanol production, which was more than 27 percent of the country’s entire corn production:
More than a quarter of what is, by a country mile, our country’s most abundant crop is being sold to a fuel industry which can’t seem to function without the government making people use its product.
This is a problem. You might even say it’s a bubble. I don’t think it’s going to be pretty for rural America when it pops.