Biofuel Market Outlook

A new feature of CARD Biorenewables is the presentation of market outlook information about U.S. corn ethanol, Brazilian sugar cane ethanol, and biodiesel. The markets for these fuels are interdependent because of the Renewable Fuels Standard (RFS) and international trade. Corn and sugar cane ethanol compete in the Brazilian market so their prices can never move to far apart. Sugar cane ethanol competes with biodiesel as an advanced biofuel in the U.S. market. This RFS-induced competition impacts corn ethanol prices because if sugar cane ethanol is a less-expensive source of advanced biofuel, then the U.S. price of ethanol will drop because more ethanol will be imported.

The outcome of this competition between biofuels will be reflected in the price of RINs (Renewable Identification Numbers) for the various fuels. The price of RIN is the difference between the cost of producing another gallon a fuel and the value that this extra gallon of fuel represents in the marketplace. (See Mandates, Tax Credits, and Tariffs: Does the U.S. Biofuels Industry Need Them All? for an explanation.) Without the RFS mandates, the price of RINs will be zero because the incremental cost of production will be equal to the market price in a freely functioning market. But if mandated volumes are greater than free market volumes, production costs are higher than market values and the price of RINs is one measure of the cost of meeting the RFS mandates.

The projections for Calendar Year 2012 presented below are made using a market simulation model. The model includes the following commodity markets: U.S. and Brazilian ethanol, U.S. biodiesel, corn, soybeans, soybean oil, and soybean meal. RIN prices are simulated for conventional ethanol, advanced biofuel, and biomass based diesel. The model is calibrated to the latest information available from USDA, energy markets, and Brazil. Because we do not know what the rest of 2012 holds for gasoline and diesel prices, and we do not know what 2012 production of corn, soybeans, and sugar cane will be, the model is run 500 times to capture how changes in energy prices and crop production in 2012 will impact biofuel markets. The results of the model simulation are shown in the following charts. (For an explanation of the modeling approach see Costs and Benefits to Taxpayers, Consumers, and Producers from U.S. Ethanol Policies).

Impact of
  1. Gasoline price on US ethanol price
  2. Gasoline price on corn price
  3. Gasoline price on conventional RIN price
  4. Gasoline price on advanced RIN price
  5. Gasoline price on biomass based diesel RIN price
  6. Gasoline price on corn ethanol production
  7. Gasoline price on US ethanol consumption
  8. 2012 corn yield on corn price
  9. Brazilian ethanol production on Brazil ethanol price
  10. Gasoline price on Brazil ethanol price
  11. Diesel price on soybean price
  12. Brazilian ethanol production on US ethanol exports
  13. Impact of US ethanol consumption on ratio of ethanol to gasoline price
Download source data

Model Assumptions

As is the case with all models, the one used to generate this biofuels outlook information is a work in progress. Below are some key assumptions made in the model. Feedback about these assumptions is welcome. Please send any comments to Bruce Babcock at

  • Corn stocks on hand January 1, 2012: 8.65 billion bushels
  • Soybean stocks on hand January 1, 2012: 2.07 billion bushels
  • Average wholesale gasoline price: $3.11 per gallon
  • Average diesel price: $3.30 per gallon
  • Value of biodiesel as a US fuel is 11 percent lower than diesel
  • Expected Brazil ethanol production in 2012/13 is 27.5 billion liters
  • Max and min Brazil ethanol production is 29 and 24 billion liters
  • Wholesale price of diesel = gasoline price + $0.30 per gallon
  • All US ethanol exports are consumed by Brazil
  • All Brazilian ethanol exports consumed by US
  • US E85 vehicle owners will use E85 if the price of ethanol is low enough
  • US capacity to produce corn ethanol constrained at 15 billion gallons
  • US corn ethanol mandate reduced to 12 billion gallons to reflect carry over RIN
  • US biodiesel mandate set at one billion gallons
  • Biodiesel production from feedstocks other than vegetable oils fixed at 680 million gallons
  • Brazil gasoline contains 25 percent anhydrous ethanol