US biofuels markets calm after no RFS mandates storm

Well, that was anticlimactic.

The US Environmental Protection Agency's release of the 2018 biofuel blending mandates and 2019 biodiesel mandate came and went November 30 without much fanfare in the US biofuels markets.

Biodiesel premiums for prompt product didn't change. The S&P Global Platts Chicago Argo physical benchmark dropped 35 points on November 30, but has since rebounded by more than a half-cent.

The biggest difference came in Renewable Identification Numbers prices. D6 ethanol RINs for 2017 compliance slipped 1.75 cents on the day of the announcement, while D4 biodiesel RINs gained by the same measure. Since the EPA mandates were released on November 30, D6 RINs have shed 5 cents and D4 RINs have lost 8 cents.

Compare that to last year, when D6 RINs for 2016 jumped 10 cents in the two trading sessions following the announcement. D4 biodiesel RINs for the same year jumped 9.5 cents in the same timeframe.

Most of the relative calm this year can be attributed to the mandates themselves. The 2017 final mandates saw large changes from the proposed levels, with several final mandates higher, sparking a run on RINs that pushed prices higher rapidly.

Unlike previous years, this year the final mandates didn't differ much from the proposed mandates released by the EPA in July. In fact, the only difference was a 50 million gallon increase in the cellulosic mandate, rising from the proposed level of 238 million gallons to a final level of 288 million gallons.

The mandate still carries an implied mandate of 15 billion gallons of ethanol. The 2018 biodiesel mandate was already set in 2016 at 2.1 billion gallons, and the 2019 mandate remained at 2.1 billion gallons as proposed in July. (The annual biodiesel mandate is set a year ahead of the other mandates.) Compare that to the prior year. In 2016, the final 2017 ethanol mandate rose 200 million gallons from the proposed levels; the advanced biofuel mandate rose 281 million gallons.

It was this lack of change that kept the market from seeing the volatile swings in prices that have marked the biofuels industry in recent years, particularly in the RINs market. RINs prices from December 1, 2016 to February to March 3 had dropped more than 70% in the last year, causing headaches for the market.

A BETTER OUTLOOK

Taking a step back, the US biofuels industry is looking on firmer ground than it appeared at the beginning of the year.

Since the 2016 presidential election, the biofuels industry in the US has faced uncertainty about its future. Trump's nominee for director of the US Environmental Protection Agency, Scott Pruitt, had long been a critic of the Renewable Fuel Standard and an ally of fossil fuel interests. Trump's later naming of billionaire investor Carl Icahn -- a vocal critic of the RFS's point of obligation scheme -- also sent RIN markets falling.

And as late as the summer, the EPA put out feelers about reducing the mandates from their proposed levels.

Now, the EPA has backed away from any plans to reduce the mandates and has rejected a change to point of obligation wanted by Icahn and several independent refiners. Certainly, lawmakers from the Midwest deserve much of the credit for protecting the nation's biofuels policy. A group of senators, led by Iowa Republican Chuck Grassley, vehemently criticized the administration whenever it appeared the RFS was at risk.

Subsequently, Pruitt assured the lawmakers that the EPA would not make changes to the biofuel regulations.

Of course, not everyone was pleased with the EPA's decision. The biodiesel lobby was "disappointed" that the 2019 biodiesel mandate didn't increase, instead staying on par with the 2018 mandate at 2.1 billion gallons, according to a statement from the National Biodiesel Board. And the final announcement was met with jeers from the oil industry, which has long despised the RFS and sought to alter or dismantle the policy.

The domestic biodiesel industry also sought, and was granted, stiff duties against Argentina and Indonesia biodiesel imports. Domestic producers long have complained about that the two large biodiesel countries unfairly flood the US with underpriced product.

Now that the biofuels industry has the mandates, it can focus on other pressing issues.

The ethanol market can focus on near-record production and rising inventories that has put downward pressure on prices. The biodiesel market can focus on the future of the expired biodiesel tax credit and whether to make it a producers rather than a blenders credit.

And those issues are ones that the industry can focus on now that it appears the federal government won't knock the legs out from under it, at least for another year.