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RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Ethanol Mandates Need to Be Waived

Aug 24, 2012

For dairy and livestock producers, it's a no-brainer. EPA administrators, however, will be under intense pressure from waiver opponents. But there is middle ground.

There’s been an awful lot of cyber-ink flowing the past couple of weeks over whether the U.S. Environmental Protection Agency (EPA) should waive its Renewable Fuels Standards (RFS) mandates due to the drought-shriveled corn crop.

Last week, EPA issued a statement that it is seeking comments on the waiver.

Mandate proponents, of course, are in full-throat support. And a study by Purdue University ag economists suggests that if corn prices remain in the $8/bu. range and oil jumps to $120/barrel, waiving the mandates won’t matter. Market forces would then incentivize ethanol plants to keep on fermenting the stuff.

But that same study suggests that if oil remains below $100/barrel and the EPA waives the mandates, corn prices could fall modestly—perhaps as much as $1.30/bu. That would be a 16% decrease on $8 corn.

I ran some of these feed prices through a University of Nebraska Extension spreadsheet used to estimate Midwest cost of production and breakeven milk prices. Even then, when corn was $5.25/bu., soybean meal $300/ton and dairy quality hay $150/ton, feed costs were running $11.40/cwt. of milk produced for a herd averaging 20,000 lb./cow. Feed costs dropped to $10.44 if the herd average was 24,000 lb./cow.

If I use the Purdue corn price estimates, feed costs jump 70%. In Purdue’s worst case scenario—severe drought with no RFS waiver—corn prices jump to $8.57/bu. When I plug that in with current soybean meal and hay prices, feed costs per cwt. of milk sold jump to $19.62 for the 20,000 lb./cow herd and $17.74 for the 24,000 lb. cow herd.

If, on the other hand, ethanol blenders carry forward their RFIN credits (ethanol they’ve already blended above and beyond requirements in previous years) and EPA waives the remaining mandates, corn prices could drop back to $6.58/bu. When I plug that number into the spreadsheet, feed costs drop to $17.79/cwt. for the 20,000 lb./cow herd and $16.14/cwt. for 24,000 lb./cow herd. The reason they don’t drop further is that soybean meal and alfalfa prices will likely remain high because of drought shortages.

Dairy and livestock producers see waiver of the mandates as a no-brainer. To them, continuing to mandate ethanol production and blending in the face of the worst drought in 50 years is nonsensical. But EPA administrators will be under intense pressure from the other side not to waiver, so to speak.

The middle ground would be for EPA to waive the “other advanced” RFS mandate, which is 750 million gallons of ethanol in 2013. Sugarcane is included in this category, and could then be credited to the conventional RFS category (and sugarcane ethanol imports would likely increase as well). “The sum of the other advanced mandate plus carry-forward RINS could potentially be about 1.2 billion bushels of corn,” say the Purdue economists. “That represents about 24% of the effective corn mandate which is roughly the size of the projected corn crop shortfall.”

Let’s hope EPA at least takes this middle ground. With $8.57/bu. corn, the breakeven milk price is approaching $27/cwt. for 20,000 lb./cow herds and just over $24/cwt. for 24,000 lb./cow herds. Getting the corn price back down to $6.50/bu. means those break-evens drop to $25 and $22.50, respectively. Even that’s not pretty. But it’s sure less ugly. 

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COMMENTS (7 Comments)

A couple of basic questions before I begin:
Did the study identify what fuel prices would be if no ethanol was available?
Does the study calculate a cost for future generations who will have to pay the true costs of fossil fuels as the depletion of our natural resources becomes apparent? i.e. The largest intergenerational theft by this generation is taken by Big Oil from our grandkids generation,
while this generations gets to take the depletion allowance now!! (A tax benefit that dwarfs any remaining ethanol subsidy)
Does the study address the carbon cost of fossil fuels?
What is the value placed on our blood & lives to keep the oil lanes open forthe global oil trade?
What was the study identified value of the ruminant bi pass quality protein provided by the ethanol industry?

9:49 PM Aug 30th
Senior PA Dairy Farmer - PA
I am going to weigh in as a dairy farmer who has been financially crushed by the feds' ethanol policies for over 3 years now. These same feds who are pushing so-called "green" ethanol (what a joke!!!) refuse to make sure that the federally-controlled raw milk prices farmers get paid reflect the TRUE and REAL cost to produce milk on the farm---which cost, by the way, includes grain prices spiked by their own blasted federal ethanol polices!

Plain and simple, ethanol with government mandates is crazy, and we (ALL Americans!) are paying the painful price now for allowing this insane and corrupt policy to develop. Who ever heard of such lunacy as to allow our livestock to go hungry and be sent to early slaughter while American dairy farmers go broke with grain pouring into "energy" that was forced into development in the first place by special interest federal fiat and tax dollars---not to mention the vast amount of additional feed being exported by "the market" to places like communist China!!!! Yes, they are COMMUNISTS, but they do have all our money, don’t they!? More brainy bipartisan federal policies behind that one!

So domestic feed and grocery bills hyperinflate for stupid reasons!

Dairy farmers need a real “free market” raw milk price that truly reflects the cost to produce milk, ramped up grain prices and all! We remain bound in a financial straightjacket under the current federal milk pricing system---which was implemented by the dairy co-ops’ block voting in 2000--- not even able to compete for the traditional use of grain to feed our cattle.

Dirty money and “energy” have become our gods!

Be assured, nothing in NMPF’s screwy Collin Peterson (D-MN) 2012 Farm Bill “Dairy Security Act” (DSA) will be changing anything for the better for dairy farmers, their creditors, consumers, or taxpayers! Have you taken the time to even read the “Dairy Security Act” line by line for yourselves? You should, if you haven’t already done so, and you will find more devious and deceptive schemes and scams designed for the express purpose to continue to permit dairy “Industry” processors to procure our raw milk way below what it really costs to produce it on the farm, while hapless taxpayers are put on the money hook to cover the newest fraud, “margin insurance,” seemingly with tax dough that had been formerly earmarked to fund the “MILC” direct payments, which, though itself a program of questionable equity and an equally abusive use of taxpayers’ money, was at least putting cash directly into the dairy farmers’ pockets to be spent on bills by the farmers themselves.

By the original law (which all the “special interests” are trying to dismantle) , the feds are supposed to make sure dairy farmers get paid enough to cover reasonable input costs, INCLUDING FEED GRAIN COSTS --check out the 1937 AMAA 608 (c) 18 provision--, but they have chosen to ignore that obligation ever since the DC politicos and their K-Street “market” handlers from the dairy “Industry” got bitten by the rabid, greedy global "Free Trade" vampire!

The only way to eliminate the dairy farmers’ chronic financial chaos would be if one of the following would happen: passage of a bill like “The Federal Milk Marketing Improvement Act” (S-1640), which would return federal minimum raw milk pricing to the original intent of Congress; or farmers themselves forcing their Capper-Volstead dairy cooperatives to FINALLY set a fair raw milk price incorporating the realistic business costs needed to produce farm milk, a price, by the way, that the milk BUYERS would have to pay or they don’t get the milk (imagine the “market” working freely for the farmer, for a change!);or giving farmers the legal right to price their own milk at the farm, for which the milk buyers would pay the farmer every month, like normal businesses do, or not get any more raw milk---again, another way to get the “market” to really work for farmers!

But, alas and alack, none of these “tools” is permitted to happen under the WTO global “new world order, “ is it? Important to notice, NMPF does not endorse any of these cost of production solutions! Still think NMPF is covering your back—or your bottom line? Better think again! NMPF does aggressively support DSA in the 2012 Farm Bill, though! This should be your chilling wake-up call, dairy farmers, about what the dairy “Industry” insiders, including all those running the dairy cooperatives, have in store for dairy farmers under the 2012 Farm Bill DSA!

Back to the current ethanol scandal, I cannot imagine that such greed and materialistic folly as what is rampant in current US ethanol policy can be pleasing to our Creator, Whose grain this is in the first place. I shudder to think of the punishment we deserve because of all the ongoing outrageous policies and practices, including those in ag, that have overtaken this once fearlessly Christian nation, but I think I am getting a glimpse of what’s coming right here on my own farm!

10:12 AM Aug 29th


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