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Analyst: 2020 Campaign Could Shift Policy Toward Ethanol Industry Over Refiners

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In their long rivalry with oil refineries, farmers who produce corn for ethanol could get a boost from the 2020 election thanks to a populist incumbent president worried about the Heartland, according to Height Securities.

President Donald Trump is likely to pursue policies that benefit biofuel producers in the Midwest at the expense of refiners, and he’s also likely to view energy policy through the lens of consumers, valuing short-term low prices over other concerns, analyst Katie Bays said in a note.

That would be disappointing for refiners, who welcomed Trump into the White House in 2017 with expectations of relaxed environmental regulations. While those initially did benefit the oil industry, Bays said that as the 2018 midterm election approached, Trump shifted toward more populist approaches on fuel standards and prices.

Winners, Losers From Ethanol

In resetting the Renewable Fuel Standard — requiring the blending of ethanol into fuel — the Trump administration likely will lean toward farmers.

That would benefit biofuel producers like Green Plains Inc (NASDAQ: GPRE), FutureFuel Corp. (NYSE: FF) and Renewable Energy Group Inc. (NASDAQ: REGI), Bays said, at the expense of refiners like PBF Energy Inc (NYSE: PBF), CVR Energy, Inc. (NYSE: CVI), and Delek US Holdings Inc (NYSE: DK).

It is a make-up move of sorts, the analyst said.

“Trump’s trade policies have hurt the U.S. farm economy, putting downward pressure on commodities like soybeans and corn,” she said.

“We expect Trump will once again use the RFS to band-aid over wounds inflicted on farmers over the past year."

Good politics, not sound policy, is the primary driver behind the Trump administration's decision-making, Bays said.

“And if there's one eternal truth of any presidential campaign, it's that supporting ethanol is good politics.”

Looking Ahead To Ship Emissions Rules

The 2020 election coincides with a planned new emissions standard for the world’s ocean-going cargo ships that could be problematic for Trump.

There are signs the White House is worried about the upcoming IMO 2020 ship fuel rules because they will spark higher demand for lower-sulfur fuels, including diesel, which could pull truck fuel prices higher, Bays said. That would lead to higher downstream costs for consumer goods just as Trump is running for re-election, the analyst said.

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