USDA already cut the corn crop forecast by 12% but as conditions continue to worsen, concerns are being raised about whether the ethanol industry will be able to meet demand under the Renewable Fuels Standard with a drastically reduced crop.

Renewable Fuels Association VP of Research and Analysis Geoff Cooper tackled that question in a white paper posted on the E-xchange Blog. “Even if ethanol production remains at current low levels for the remainder of the year, obligated parties should have no problem meeting their 2012 RFS blending obligations,” according to Cooper, based on the flexibility built into the RFS program “specifically to address unique market conditions and unusual events.”

While ethanol production is dropping and some plants are idling due to tight margins, the good news is there is over 800 million gallons of ethanol currently in storage to help meet the RFS. “Given current gasoline demand, a healthy 20-day supply of ethanol stocks would be 745 mg, meaning current stocks of 820 mg are still slightly on the heavy side,” Cooper said. In addition, excess RINs can be used by obligated parties for compliance in lieu of physical gallons.

The latest Energy Information Administration data puts annualized ethanol production this year at 13.26 billion gallons. The 2012 RFS requirement is for 13.2 billion gallons of “renewable fuel,” which includes, but is not limited to, grain ethanol.