Grains –
An all around interesting session yesterday. First off, note that oilshare did in fact make it back to my trigger point noted a week or so ago. It seemed like someone listened and oilshare was sold aggressively especially late in the session yesterday. Considering the newsflow of the day, I’m surprised by this move.
The newsflow involved arguments presented in court where the RFA among others are suing and arguing the EPA has abused their power by lowering RFS requirements in years past. As you may or may not know, the annual RFS requirements each year are actually put forth by the EPA in what has always been a legally ambiguous arrangement. The actual law as written by Congress actually has sharply higher advanced biofuel requirements, as shown below.
So the newswires implied yesterday that two out of the three judges at the court seemed leery whether they believe EPA actually has the authority to make these types of “waivers” to change the RFS requirements. One judge was quoted as saying “I don’t see this stature as necessarily that kind of grand authority for EPA….If things are totally screwed up, then Congress should fix it”. The second judge noted that the entire point of the mandate was to create a market for biofuels in US transportation and that Congress designed the law to force the market to adapt to annually-increasing biofuel blending mandates.
So, this quite obviously might have some potential implications for the advanced biofuel market, and less for corn. If memory serves correctly, however, the big push in the original mandate writing was cellulosic ethanol (which would count under advanced) and obviously the industry has not made great strides in production there. My understanding is that Congress originally thought (in 2005) cellulosic production could be up to 7 bil gallons by now. If you take that out of the advanced number, we get to a much more reasonable figure for advanced.
I guess as I think this through, the selling reaction of oilshare after the market popped on this news actually makes more sense now as the biodiesel-specific numbers for this year wouldn’t vary greatly (repeating—the gap is mostly cellulosic). Still, unspecified advanced biofuel mandates really start to kick in this year and next as well (as per the original doc) so there is still some potential upside to soyoil if there is a change in the law.
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