At the start of the crop season, U.S. corn production was projected at 14.7 billion bushels at a U.S. farm price of $5.34 per bushel. The USDA now estimates U.S. corn production will reach only 10.8 billion bushels this year, at $8.20 a bushel. Should the drought strengthen and the EPA sticks to the mandated 13.8 billion gallons of ethanol in 2013, a corn crop of 10.5 billion bushels could push corn prices to $8.57 per bushel, according to the Purdue report. If drought conditions abate and corn production reaches 11.5 billion bushels, corn prices could fall to $7.02 a bushel under a full RFS ethanol mandate.

"However, because of carry-forward blending credits from prior years - the RINs - refiners and blenders could decide to produce and blend 2 billion fewer gallons of ethanol," Tyner said. "That change alone could reduce the price of corn around 67 cents a bushel. And that is without any EPA waiver."

The EPA will have much to consider before rendering its waiver decision, Tyner said.

"It will have to determine what impact issuance of a waiver actually would have, given the way the market functions at present," he said. "For technical and economic reasons, refiners may well continue to use nearly the same amount of ethanol even if they are not required to because of a waiver. Technically, they may not want to change their current mix of gasoline and ethanol to make 87-octane gasoline, as an example. Economically, they would not be expected to reduce ethanol use as long as ethanol prices are below gasoline, as they are now. If refiners and blenders don't have or choose not to use operating flexibility, and if reduced use of ethanol is not economical, then a waiver would have no impact.

"To the extent that refiners and blenders do have flexibility with their use of ethanol, a small waiver could reduce corn prices around 47 cents a bushel, while a large waiver could reduce it as much as $1.30 a bushel, depending on economic conditions."

Should a waiver lead to reduced ethanol use, the EPA could have an influence on who bears the brunt of the drought-related corn losses, Tyner said.

"The total amount of harm from the drought is in the tens of billions of dollars," he said. "The EPA cannot change the loss. It can only potentially redistribute it among the affected parties: ethanol producers, livestock producers, corn growers, and domestic and foreign consumers."

Thursday's webcast with Tyner, Hurt and Taheripour will be at 11 a.m. EST. To view the free online event, log onto the Farm Foundation website and click on "Register now." Early registration is encouraged.

For those unable to view it live, the webcast will be archived on the Farm Foundation website.