Industry leaders optimistic about policy and renewable fuels growth
SIOUX FALLS, S.D. — Despite low corn prices, farmers are coming off a successful year for policy and growth in renewable fuels. That was the message industry leaders shared at the South Dakota Corn Growers Association annual meeting in Sioux Falls on Jan. 20.
Emily Skor, CEO of Growth Energy, looked at what's ahead for the ethanol industry post 2022 and the current success they're having working with gas station retailers to build the infrastructure to sell higher ethanol blends. She says it's part of their Prime the Pump Campaign.
"The past year we've doubled the amount of gas stations that are selling E15," says Skor. "We're at over 1,300 gas stations in 29 states."
Skor says retailers she works with are excited about the consumer response they're getting to E15. Their goal is to have 2,000 retailers on board by the end of 2018. She says one of the biggest challenges will be to gain a waiver for the Reid Vapor Pressure rule, which would allow sales of E15 and higher ethanol blends to be sold in the summer months.
2017 was also a banner year for U.S. ethanol exports.
"It was a great year," says Mike Dwyer with the U.S. Grains Council. "In fact, it surprised all of us. 1.37 billion gallons — that's an awful lot of corn, roughly about 500 million bushels."
He says the other surprise was that Brazil was their top customer.
"The gap between the prices in Brazil and the U.S. got so wide that it was the easiest trade in the world, and Brazilian importers started importing unprecedented amounts — 500 million gallons," says Dwyer.
That was until the Brazilian government imposed a 20 percent Tariff Rate Quota on imports of U.S. ethanol.
Even so, Dwyer doesn't think the tax will stop Brazil from buying U.S. ethanol.
"It's definitely going to slow them down, but we still think Brazil will be the second largest market in the world for us even with the 20 percent duty," he says. "Canada would take over the No. 1 spot, then it would be Brazil, and India after Brazil."
Dwyer says they're also optimistic about other markets like China, which has announced a nationwide E10 mandate. That is why the U.S. Grains Council is predicting another record year for ethanol experts in 2018. "Our goal is about 5 billion gallons, which is really aggressive ... that is like a 19 percent a year growth rate in trade," he says.
South Dakota Corn Growers Association President Troy Knecht says they're excited about this growth and are supporting policy to ramp up production. He says during their resolution session a proposal was offered to push E30, even in non-flex-fuel vehicles. The resolution was defeated because Knecht says they are looking at another pathway to ramp up to higher blends.
"It's an approach we are taking with the auto makers to try to figure out what octane do they want and what ethanol level in the fuel does that lead us to?" says Knecht.
Corn growers also received an update on another piece of policy that was a success for them in 2017. Patricia Wolff, senior director of congressional relations for the American Farm Bureau Federation, shared details of the Tax Cuts and Jobs Act. She says there are provisions positive for agriculture.
"There are lower tax rates in the bill, and farmers and ranchers will continue to be able to use some of the tax planning tools that have existed in the past that helped them get their taxes down," she says.
The top corporate rate under the tax reform law will go from 35 percent to 21 percent.
"For businesses that are not incorporated all the brackets are shifting down," Wolff says. "The top rate is going from 39 percent to 37 percent, but there are seven tax brackets and all of them are going down."
Plus, farmers and other small businesses will be able to take a deduction worth 30 percent of their profit and that that deduction will carry forward.
Other wins for agriculture included a doubling of the estate tax deduction to $11 million per person, $22 million per couple. Section 179 doubled from $500,000 to $1 million and is permanent. Plus, farmers will be able to use bonus appreciation or immediate expensing.
"That is not limited. So, farmers should be able to deduct immediately all their business costs and again those will carry forward," Wolff says.
However, it does phase out over eight years.
Congress is currently working on a fix for 199A, so it will not be market distorting in favor of farmers selling grain to cooperatives. Wolff isn't sure what that fix will be, but says it will be coming soon.