Ethanol imported as advanced biofuel competes with biodiesel

By Susanne Retka Schill | December 10, 2012

Ethanol imports from Brazil have surged into the U.S. in recent months, University of Illinois ag economists Scott Irwin and Darrel Good point out, but not because it is cheap relative to ethanol. Rather, it is a cost-effective way of meeting the advanced biofuel requirement in the renewable fuel standard (RFS). And by that, they mean it is cheaper than biodiesel.

The two economists offered their analysis in the Dec. 7 issue of FarmDocDaily, “What’s Driving the Surge in Ethanol Imports?”  They note that Brazilian ethanol, delivered to the U.S. Gulf was $2.85 on Nov. 29, when U.S.-produced ethanol at Gulf terminals was $2.60 per gallon. That same day CBOB was $2.52 per gallon -- a 33 cent spread. That is far more favorable than the spread between ULS diesel at the Gulf of $3.03 per gallon and B100 at $4.08, a spread of $1.05.

“One final conversion must be done to make a fair comparison,” the analysis continues. “Since biodiesel is worth 1.5 gallons of ethanol in the RFS math, we need to divide the net profit for diesel blending by 1.5 to arrive at a net profit of -$1.05/1.5 = -70 cents per gallon. This makes biodiesel almost twice as expensive as imported Brazilian ethanol when it comes to meeting the advanced RFS mandate. And that is the reason why Brazilian ethanol imports are surging into the U.S. during recent months.”

With Brazil ethanol imports adding to blend wall pressures, the authors also note that a reinstatement of the $1 per gallon tax credit for biodiesel blend would provide more room for U.S.-produced ethanol.