As the House prepares to vote on year-round E15, there’s a new study out from the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI), and it’s is giving agriculture and biofuels groups an early look at what expanded year-round E15 sales and changes to Small Refinery Exemptions (SRE) could mean for farmers and rural America. While there are positives for ethanol and corn demand, the report also highlights some clear tradeoffs, especially for soybean oil, biodiesel and even short-term farm income as soybeans could be negatively impacted by the House’s legislation.
According to FAPRI Director Seth Meyer, the study’s clearest takeaway is that year-round E15 alone doesn’t dramatically reshape the farm economy in the near term, but proposed changes to small refinery exemptions could pressure farm income while increasing government spending.
Meyer says the headline is pretty straightforward. The biggest market disruptions in the analysis don’t actually come from allowing year-round E15 sales. Instead, the larger economic consequences show up when the House proposal to reduce SRE reallocations gets layered into the equation.
“The key of the report is that E15 itself is not, at least in the short term, a major disruption to the market in terms of producer incomes or government costs,” Meyer says. “It becomes mostly a tradeoff between corn and soybeans.”
SRE Allocations Changes the Story
Meyer says the study found that if it was just a clean E15 bill, the results would be different. But when you factor in the SREs, and the fact it’s still unknown on how big that volume would end up being, the House version of the bill becomes a negative for the entire agriculture sector very quickly.
“I think what was important was to put out some information that says E15 in and of itself is largely, at least in the near term, a trade-off between corn and beans,” says Meyer. “It’s good for the corn part of the balance sheet, maybe a little harder on the soybean part of the ballot sheet because there are trade-offs. But then the bill also proposes small refinery exemptions that are essentially a reduction in the mandates, and that is a negative overall. That takes what is really a trade-off between corn and beans and makes it an overall negative for both what the government spends and for the farm income for the sector.”
In FAPRI’s modeling, reducing the amount of waived refinery obligations that get redistributed across the rest of the refining sector effectively lowers Renewable Fuel Standard volumes. That shift weakens biofuel feedstock demand and creates more pressure on soybean markets and farm income.
“It is the addition of the small refinery exemptions and the proposal to not reallocate 75% of those obligations that government costs we track begin to rise and farm income begins to fall,” Meyer explains. “Those SREs are the main drivers of government costs and reductions in farm income because they are, in effect, a reduction in the RVOs or mandates.”
The FAPRI analysis looked at three scenarios tied to HR 1346, the Nationwide Consumer and Fuel Retailer Choice Act:
- E15 expansion alone
- E15 plus 600 million gallons of SRE reductions
- E15 plus 900 million gallons of SRE reductions
Under the model, E15 adoption gradually grows by 0.25% annually, eventually pushing the average ethanol blend rate to 13% by 2035. That increase would add roughly 2 billion gallons of domestic ethanol use by the mid-2030s, while simultaneously changing the balance between ethanol and biomass-based diesel under the RFS structure.
What Happens to Corn and Soybeans?
FAPRI’s findings show E15 expansion boosts corn demand and corn acreage over time. By 2035, corn prices rise about 14 cents per bushel versus baseline levels, with additional corn acres pulled into production as ethanol demand expands.
But, according to the report, the gains for corn do not translate evenly across the broader crop sector. As ethanol demand rises, biomass-based diesel demand weakens, which directly pressures soybean oil values and eventually soybean prices. That’s especially true under the SRE scenarios, where lower mandated renewable fuel volumes further reduce demand for biodiesel feedstocks.
“So while corn may benefit, a reduction in the RVO has negative implications for soybeans that outweigh those corn benefits,” Meyer explains.
The report projects soybean prices could fall between 38 and 43 cents per bushel by 2035, depending on the SRE scenario. Soybean acreage also trends lower throughout the projection period as acres shift toward corn production.
Meanwhile, soybean oil prices take an even larger hit because biodiesel absorbs much of the downside under reduced RFS obligations. Meyer says that dynamic is rooted in how current mandates are being met today.
“You see bio-based diesel decline in all cases because, at the moment, the majority of the marginal gallons to meet the mandates are biodiesel,” Meyer says. “If you expand the small refinery exemptions, those volume reductions are no longer a tradeoff between ethanol and bio-based diesel, but a reduction in the marginal gallon, which is bio-based diesel.”
Farm Income Turns Negative Before Recovering
One of the more notable findings in the study is that net farm income trends negative for several years under the SRE scenarios before eventually recovering later in the outlook period. While stronger corn demand helps offset some losses, it isn’t enough in the early years to counter the broader drag from weaker soybean and bio-based diesel markets.
Under the larger 900-million-gallon SRE scenario, net farm income falls by as much as $1 billion annually during the early 2030s before improving later in the decade. FAPRI also projects higher government outlays under the SRE scenarios as weaker commodity prices trigger additional farm program support.
Meyer says soybean losses are the biggest driver behind the weaker farm income projections. He also notes that ripple effects extend into livestock feeding costs because of tighter soybean meal supplies and higher corn demand.
“The notable driver in the outcome is the losses for soybeans as the SREs cut mandates,” he adds.
The livestock sector also sees higher feed costs as corn demand rises and soybean meal supplies tighten. Over time, those higher feed costs work their way through animal agriculture and eventually impact consumer meat prices as producers adjust inventories and production decisions.
Key Points From the Study
- E15 expansion alone modestly boosts corn demand with relatively limited disruption to overall farm income.
- Reduced SRE reallocation lowers effective RFS mandates and creates the largest negative impacts on crop receipts and government outlays.
- Biomass-based diesel demand declines more sharply than ethanol demand under the proposed changes.
- Corn acreage rises while soybean acreage falls across all scenarios.
- The long-term outcome depends heavily on how quickly E15 adoption actually happens — and whether EPA eventually expands the conventional ethanol “gap” above 15 billion gallons.
That final point may be one of the biggest wildcards in the entire discussion, said Meyer. FAPRI’s analysis assumes the conventional ethanol portion of the Renewable Fuel Standard effectively remains capped near 15 billion gallons. If EPA policy or future legislation allows that cap to move higher, the economics for agriculture could look considerably different.
“You call out a very important assumption,” Meyer says. “If the passage of E15 were to drive an expansion of that 15-billion-gallon conventional gap to 16 or 17 billion gallons and raise total mandates by that same amount, this would increase benefits or reduce losses in the ag sector across all the scenarios.”
Corn Growers React, Disagrees With “Two Fundamental Assumptions”
The recent analyses examining the potential impacts of year-round E15 adoption are drawing sharp disagreement from the National Corn Growers Association (NCGA), which says key assumptions in those models undercut the policy’s real-world effects.
In response to the reports, Krista Swanson, NCGA’s chief economist, argued that the studies fail to account for recent federal biofuel policy changes and underestimate how quickly E15 could be adopted in the marketplace.
“We disagree with two fundamental assumptions with recent analyses related to year-round E15 adoption: they do not factor in the historically high final RVO volumes recently set for biomass-based diesel and they assume slower E15 adoption than industry projections,” Swanson says.
Swanson added that NCGA’s own modeling reaches a very different conclusion on the policy’s impact on farm income and fuel markets.
“NCGA has also conducted its own analysis of year-round E15 and all outcomes point in the same direction: E15 strengthens corn demand and farm income for corn farmers, most of whom also raise soybeans. Year-round E15 saves drivers money at the pump, supports America’s corn farmers and improves energy security for our country. H.R. 1346 deserves a yes vote.”
The Biggest Unknowns
Meyer says there are still several major uncertainties surrounding both E15 adoption and how EPA ultimately implements future RFS obligations. Those unknowns could significantly alter how these market impacts unfold over the next decade.
“I don’t think there is a single assumption on this complicated issue, so let me state three,” he adds. “First is the true path of E15 expansion and more importantly, the second is how that might drive changes in mandates as a result. Third, what is the true volume of exemptions that would result from the legislation? Because we don’t have this information, we did two scenarios.”
The pace of actual consumer adoption also matters. While the model assumes gradual E15 growth over time, Meyer says a slower adoption curve would likely soften some of the corn demand benefits while making the negative impacts tied to SRE reductions more apparent.
“If growth in E15 is slower and we look just at the ‘clean’ E15, it just changes the amount of tradeoffs between corn and soybeans,” Meyer said. “But if we had slower E15 growth with SRE reductions, we would show more negative impacts on crop prices and farm income from the SREs.”