Pricing RINs and Corn in a Competitive Storage Model

A rational expectations competitive storage model for U.S. corn and RIN (Renewable Identification Numbers) markets is built to study the impacts of different ethanol policy scenarios. The model considers corn use for ethanol, storage and all other uses in each period, accounting for two random variables: oil prices and corn yields. Borrowing and banking provisions of the Renewable Fuels Standard (RFS) mandate are also integrated into the model. We use the model to provide estimates of the impact on corn prices, corn plantings and ethanol production under two ethanol mandate scenarios for six marketing years from 2014/15. The first scenario is one in which corn ethanol mandates stay the same as required in the RFS and additional E85 stations are introduced that allow for compliance with higher mandates. The second scenario is one in which no investment occurs and the Environmental Protection Agency reduces the mandate to 13 billion gallons. We find that corn prices drop about 6 percent from reduced mandates or about 26 cents per bushel, while RIN prices drop from around 54 cents to nearly zero. The results suggest that meeting the more broad policy objectives of energy policy and not the price of corn or RINs should determine the level of ethanol mandates