Shares of ethanol producers climbed Monday after a security analyst dismissed recent talk that Congress may repeal or lessen current required use of the corn-based commodity.
The Renewable Fuels Standard, or RFS, requires petroleum refiners to blend 9 billion gallons of ethanol this year, 15 billion gallons by 2015 and 36 billion gallons by 2022. Along with other subsidies, like a tax incentive and tariff, the RFS has increased demand for corn, and thus its price.
Chris L. Shaw, a UBS Investment Research analyst, acknowledged in a client note that soaring global food prices are increasingly blamed on U.S. subsidies for ethanol.
"We believe that, despite all the recent talk and news coverage of the food vs. fuel debate, it is unlikely that the RFS will be repealed or waived anytime soon," he wrote.
"Although it is very likely that the rapid build up of the ethanol industry has helped to contribute to higher food prices globally, it is unlikely in our view that the industry will now be dismantled by the government that helped build it."
And even if it did, any legislation trimming or eliminating the RFS would probably not achieve its purpose, Shaw wrote.
"With ethanol production likely to meet and exceed RFS mandates from new capacity, a reduced mandate won't lessen production near-term. As a result it won't provide relief to corn prices and thus it is unlikely to help lower food costs in the near term."
Shares of Aventine Renewable Energy Holdings Inc. rose 22 cents, or 5.3 percent, to $4.40; Verasun Energy Corp. gained 47 cents, or 7.9 percent, to $6.40; and Pacific Ethanol Inc. added 3 cents to $3.25.
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