What is the outlook for regulatory or policy changes (e.g., RFS credits, tax incentives) that could impact future earnings?

Regulatory Outlook

The ethanol sector remains tightly linked to U.S. renewable‑fuel policy, especially the Renewable Fuel Standard (RFS) and the associated “RFS credits” that ethanol plants sell to refiners to meet mandated blending targets. Over the past two years, the EPA has been under pressure from both the bio‑fuel lobby and the oil industry, resulting in a relatively stable credit market but with periodic volatility around the annual “crediting” process. While the agency has not announced any major revisions to the 2022‑2024 credit allocations, analysts expect the 2025 crediting round to be finalized in the next 6‑9 months. If the EPA tightens the credit pool—either by capping the total credits or by raising the “hard‑ship” thresholds for small‑refiner exemptions—Rex’s ability to monetize its ethanol output could be compressed, weighing on margins. Conversely, any move to expand the credit ceiling (e.g., a modest increase to meet the Administration’s 2025 blending goals) would boost the value of Rex’s RFS inventory and support higher earnings.

Tax‑incentive Landscape

At the federal level, the 2022 Inflation Reduction Act introduced a 30 % production tax credit (PTC) for advanced biofuels, but conventional corn‑based ethanol like Rex’s does not qualify. However, several states (e.g., Ohio, Indiana) still offer low‑carbon fuel credits or sales‑tax exemptions that can improve plant economics. Recent legislative activity in the Midwest suggests a possible expansion of state‑level “low‑carbon fuel” programs, which could provide incremental upside to Rex’s cost structure if the company can certify its product under those schemes. On the downside, any rollback of state subsidies—particularly in Ohio, where Rex’s primary facilities sit—would erode a modest portion of its profitability.

Trading Implications

Given the near‑term earnings release (Aug 27, 2025) and the absence of any concrete policy shift in the filing, the market is likely to price Rex’s stock on a “status‑quo” RFS outlook. However, the next 12 months are a critical window for regulatory risk: a tightening of RFS credits or a reduction in state incentives could compress margins, while an expansion of credit pools or new low‑carbon programs would be a catalyst for upside. Traders should therefore:

• Maintain a neutral‑to‑light‑long bias on Rex (NYSE: REX) ahead of the Q2 call, with a focus on the credit‑price spread (ethanol price vs. RFS credit price) as a leading indicator.
• Watch for EPA credit‑allocation updates (typically released in Q3) and any state‑level legislative activity in Ohio; a surprise in either direction can trigger 3‑5 % moves in the stock.
• Set a stop‑loss around 4 % below the current price to guard against a sudden credit‑price compression, and consider a modest profit‑target (≈6‑8 % upside) if the call highlights a favorable credit outlook or progress on low‑carbon fuel certifications.