NEW YORK - Ethanol production credit prices tumbled six percent this week after trebling since June, with traders taking profits on the fear, though remote, that the U.S. government might relax the mandate in the face of a shrinking corn crop.
Renewable Identification Numbers (RINs), essentially credits that fuel companies use to prove they have satisfied the ethanol production mandate, surged this summer as a drought-stricken corn crop raised questions about whether ethanol producers would make enough fuel for oil companies to meet their quotas.
But this week they tumbled even as Chicago corn reached new records, with mounting pressure on the Obama Administration to relax or suspend the Renewable Fuels Standard that requires blenders to use more than 9 percent ethanol in their gasoline.
While most traders say they don't expect a waiver to be granted, it seemed time to take profits.
E12 RINs, referring to ethanol RINs produced in 2012, dropped 6 percent to trade at 4.70 cents a gallon after trading last week at 4.95 cents, traders said.
"I think it is the old sell-the-rumor thing going on," said one RINs trader. "Remember it is an election year."
RINs stands for Renewable Identification Number, a 38-character identifier given to every gallon of ethanol and renewable fuel produced in the United States.
This allows each gallon to be tracked to ensure compliance with the Renewable Fuel Standard Act by obligated parties such as refiners and blenders.
Obligated parties are able to buy or trade RINs to meet their quotas, which now is 10 percent of their gasoline production.
On Friday, the U.S. Department of Agriculture slashed corn crop estimates to the lowest level in six years, saying the corn crop will be 13 percent smaller than last year with a yield of 123.4 bushels per acre.
This puts corn yields for the 2012/2013 marketing year at the lowest since 1995, cutting back stockpiles to three weeks when the harvest begins in the fall.
Less corn will be used in making ethanol due the drought, said the USDA. It lowered its estimate by 8 percent for 2012/13, to 4.5 billion bushels, or 40 percent, the same proportion as this marketing year.
However, traders in the renewable fuel currency don't expect the U.S. government to issue a waiver to cut back use of the corn-based fuel as mandated by the 2007 Renewable Fuel Act despite the lowest corn crop in years.
In November, President Barack Obama, a supporter of ethanol, goes to the poll seeking second term. Some of the most fiercely contested states are in the farm belt, where the mandate is very popular.