(Recasts, updates with details following Thursday meeting)
By Jarrett Renshaw and Stephanie Kelly
Sept 12 (Reuters) - U.S. President Donald Trump said the administration has made progress on a biofuel reform package after he met with U.S. senators from key farm states on Thursday as part of an ongoing effort to boost ethanol demand and help hard-hit corn farmers.
Trump met with a group of corn-state Republican lawmakers that included Iowa senators Joni Ernst and Chuck Grassley on Thursday afternoon, four sources familiar with the matter said. Iowa Governor Kim Reynolds also attended the meeting, two of the sources said. The president is expected to meet with senators representing oil-producing states on Friday to continue discussions on the issue, sources said.
Trump is trying to appease two constituencies - Big Corn and Big Oil - to help propel him again into the presidency in 2020. The two groups have clashed on biofuel policy.
"I think we had a great meeting on ethanol for the farmers," Trump told reporters at the White House. "Let's see what happens."
The Thursday discussions follow a meeting the president had with two of the largest U.S. refining companies on Wednesday. Valero Energy CEO Joe Gorder and Marathon Petroleum CEO Gary Heminger asked Trump for solutions to help the refining industry cope with the cost of rising biofuel blending mandates, including potentially capping the price of blending credits refiners must acquire to comply, sources familiar with the matter said.
The White House declined comment on the details of the talks.
The corn industry has been dead-set against price caps for blending credits, called RINs, arguing they would undercut the economic incentive for blending biofuels.
A Marathon spokesman confirmed the meeting but declined to comment on what was discussed.
"The intent of the meeting was to engage with the president on policies that impact our business and consumers who rely on them. We're always looking to find win-win solutions between the fuel manufacturers and the ethanol industry, which are going to be beneficial for consumers," spokesman Hamish Banks said.
The White House and a representative for Valero were not immediately available to comment.
Trump has struggled to satisfy warring agricultural and oil interests, key political constituencies that helped elect him in 2016 and which he hopes to retain heading into the 2020 election.
The White House since last week has been trying to win support from both sides for a 5% increase to blending mandates in 2020 above the currently proposed volumes under the U.S. Renewable Fuel Standard. The increase is meant to compensate biofuel producers and corn farmers for the administration’s decision in August to exempt 31 oil refineries from their requirement to blend biofuels under the RFS.
The agriculture industry says the administration’s broad use of waivers has undermined the market for corn-based ethanol at a time farmers are already losing export sales from the U.S. trade war with China.
So far, biofuel producers have balked at the administration’s offer of a one-time increase in mandates, instead pushing for a structural change to biofuel policy that would compensate them for future exemptions to refiners as well.
U.S. biofuel credits on Thursday rose 2.5 cents, or 15%, on refiners including Phillips 66 and Valero Energy Corp actively buying in the market, traders said.
Energy industry advocacy groups wrote on Thursday to the heads of the Department of Agriculture and Environmental Protection Agency objecting to the proposals under consideration and in favor of small refinery exemptions.
"The exemption must be available to any small refinery, regardless of ownership, in order to achieve the purpose of the statute," the letter said. (Reporting by Jarrett Renshaw, Stephanie Kelly and Chris Prentice, additional reporting by Jeff Mason in Washington, D.C. Editing by Rosalba O'Brien and Cynthia Osterman)