cancel
Showing results for 
Search instead for 
Did you mean: 
Senior Advisor

RIN Prices Exploding

"Conclusions

The speed and magnitude of the recent increase in the price of D6 RINs is indeed startling. The run up in prices may include some unusual speculative buying, but the value of D6 RIN credits is fundamentally supported by the ethanol blend wall. Two possible developments could alter that fundamental support and result in declining RIN values. First, a more rapid expansion of ethanol blending through E15 or E85 would expand the blend wall and reduce the demand for D6 RIN credits to meet the renewable (ethanol) biofuels mandate. Second, a reduction in the RFS mandate for renewable fuels would also reduce the demand for D6 RIN credits. While neither of these developments is on the immediate horizon, developments should be closely monitored. Without a resolution to the ethanol blend wall issue sometime soon, a portion of the renewable (ethanol) mandate beginning in 2014 may have to be satisfied with advanced biofuels or advanced biofuels RIN credits (D4 or D5) , most likely biomass-based biodiesel (D4). If that is the case, the price of D6 RINs could be supported up to the price of D4 biodiesel RINs. Those D4 RINs are currently trading at about $.10 premium to D6 RINs.

Issued by Scott Irwin and Darrel Good
Department of Agricultural and Consumer Economics
 University of Illinois"

 

http://farmdocdaily.illinois.edu/2013/03/exploding-ethanol-rins-prices.html

0 Kudos
4 Replies
Veteran Advisor

Re: RIN Prices Exploding

Jim,

thank you & very interesting. 2 bits of data leaped out.

1. RIN's are credits. The credits are used to replace a product in short supply and/or in more demand. in this case it's BOTH.

2. ARTICLE STATES: "Some have incorrectly attributed the price increase to concerns about prospects for lingering U.S. drought conditions, continued high corn prices, and limited availability or high price of ethanol. The declining price of December 2013 corn futures, however, actually implies that recent precipitation has reduced concerns about the size of the 2013 U.S. corn crop, at least for now."

NOTICE how the article doesn't say - some have incorrectly attributed all the above concerns to OLD crop! - it only mentions high corn prices. Of course high prices must be completely un-related. uh-huh.

 

i remember a time not too long ago when the people were saying corn supply is plenty for etoh b/c of the RINS. We can use them as a backup cushion & therefore won't have to drain corn supply to meet needs.

 

fig1.jpg

 

This mkt has increased by some 460% in a few weeks. Could it be a harbinger of related mkts to come? Up until then, RINS were used as normal credit backup then paid back like a business using credit under normal conditions. This curve looks like they're about to go bankrupt? The need to fullfill the mandate and supply chain will have to look elsewhere.Things might start moving pretty fast nearterm.

   

0 Kudos
Advisor

Re: RIN Prices Exploding

I apologize for my ignorance, but help me understand the RIN credits. Can a blender use the RIN credits inplace of ethanol (to be blended in the fuel) with the promise of future blending use of more ethanol?

0 Kudos
Honored Advisor

Re: RIN Prices Exploding

I am not sure it even takes a promise of future activity.

 

If one state or location can't get enough to meet blends they can buy rins from other areas of the country--------- I am just repeating what I was told last week.

California was the place mentioned to me---- needed to buy rins from interior areas to help meet mandate.

 

Does that sound right??

 

Reading the article and the discussion I had last week with local ethanol representative, a few things just jump out.

 

However well meaning,  we have another legal statute that demands an action and at the same time provides a way to "buy" our way out of compliance------------ well meaning I am sure ------------------ but odorus. 

 

One possibility that is not mentioned, our two coasts are stuck in a position of needing lots of ethanol and needing to source it.  Has this "price/bribe" bump come from Brazil's inability to get ethanol out of port or to the port??

 

 

 

 

0 Kudos
Honored Advisor

Re: RIN Prices Exploding

I think I might have heard the proposition last week that we were trying to build a unitrain of ethanol for europe at a breakeven price and make the profit selling the rins to the west.

I had a much less eductated ear last week than I like.....

0 Kudos