Biofuels And All That

11/08/12 -- I read with interest yesterday a report saying that Commodities house Czarnikow now speculate that following the expiry of the US ethanol blenders' credit at the end of 2011, the adjustment to Europe’s E90 loophole, and the sharp spike in world corn prices we could even see Ensus come back online (albeit at an unspecified date).

My initial reaction was one of my usual scepticism, yeah right, sure, why not close down when wheat is GBP200/tonne, wait for it to fall to GBP140/tonne and do nothing, then wait for it to go all the way back up to GBP200/tonne and re-open again. Hmmmm....

It is with increased interest then this morning then that I read that the Argentine government yesterday decided to hike it's tax on biodiesel exports from 20% to 32%, starting today, in order (it says) to to make domestic fuel prices more affordable.

Now we all know that you can't believe anything a politician says, ditto you know when a woman is lying as her lips move, so we can probably immediately disregard anything that Argy femme fatale and all round babe that President Cristina Fernandez utters as being total codswallop the nanosecond that it leaves her highly glossed pouting lips.

Being around her must be like being in a living, breathing, real life episode of Dallas every day. A dead, much older ex-husband, the make-up, high heels, tight short skirts, exotic lingerie (I assume - if she wears any at all that is), expensive fast cars, diamonds, and massive position of power and money. In fact, I wouldn't be at all surprised to see ex-husband Néstor, who died appropriately enough under mysterious circumstances after reportedly suffering a massive heart attack (what was he up to at the time, we can only wonder) come back to life being played by Antonio Banderas in time for the next series, only for us to be told that everything that has happened between 2010 (when poor old Néstor became an underground turnip inspector) and 2012 has all been a dream.

I appear to have drifted off on a bit of a tangent here, hang on....

Right, so the Argies have upped the tax on biodiesel exports, we know that they aren't arsed about helping the people, getting more tax revenue in is what they are bothered about. Now it is an interesting fact is it not that, according to Oil World, Argentina exported 900,000 MT of biodiesel in the first half of 2012, up from 726,000 MT in FH 2011. Of that 900,000 MT a whopping 93% (840,000 MT) came here to the EU.

You may recall that Spain banned imports of biodiesel from outside the EU back in April in a spat with the Argies following the latter's decision to seize control of energy company YPF from Spain's Repsol. The Spanish are still taking previously contracted Argy biodiesel, and in fact accounted for more than half the 840,000 MT that was imported from Argentina in FH 2012, but that is expected to quickly dry up in the second half of the year.

So, we now have a situation where Argentina's biggest single customer has shut the door and they've now upped the export tax 60%. Meanwhile across the pond we've got ethanol plants closing due to a combination of high corn prices and reduced availability, reduced demand from Europe now that the "splash & dash" loophole has been closed, whilst US demand for gasoline is down resulting in surplus ethanol stocks.

Throw in increased public awareness that the US ethanol mandate is pushing up domestic food prices over there, and a growing lobby to at least partially waive the  Renewable Fuels Standard and things are starting to look interesting for European biofuel supply & demand.

President Obama apparently goes on a three-day bus tour of Iowa, America's largest corn producing state, starting Monday to see for himself how bad things are this year. Friday's tinkerings from the USDA incidentally still leave 42% of the US corn crop going into ethanol production.

Maybe there is a case for Ensus re-opening after all? Of course all this is dependant on the EU persisting with it's own misguided Renewable Energy Directive. That, it would seem is what this market has come to,  political decisions which we have no way of predicting will happen or not, decide price direction from here.