Apr 17, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin

Ethanol Mandate Battle Begins, but Ethanol Here to Stay

August 3, 2012
By: Fran Howard, AgWeb.com Contributing Writer
POET ethanol plant
  

Ranching groups are asking for a suspension of the renewable fuels standard. What will that mean for corn demand and prices?

U.S. ranchers and livestock producers urged the Obama Administration this week to suspend the nation’s renewable-fuels standard (RFS) for the rest of the year and into 2013.

The livestock and ranching groups argued that demand for corn used to make ethanol is reducing available corn supplies for feed and food production. The time has come to wean the ethanol industry off government mandates, said J.D. Alexander, president of the National Cattlemen’s Beef Association.

The mandate requires gas refiners to use 13.2 billion gallons of ethanol this year and 13.8 billion in 2013. To meet that requirement, ethanol plants would have to grind 4.7 billion bushels of corn in 2012 and 4.9 billion bushels next year. The request to waive the RFS came when December corn futures were testing the all-time record high of $8.245 on the Chicago Board of Trade.

"It is abundantly clear that sufficient harm is occurring now and that economic conditions affecting grain supplies and feed prices will worsen in the months ahead," the petition stated. "Both conditions provide an independent basis for a waiver of the RFS."

Even if the Environmental Protection Agency were to waive the mandate, regulators would first need to prove that keeping the mandate in place would cause serious economic harm. "They would have to do some economic analysis first," says Bruce Babcock, agricultural economist at Iowa State University. The last time EPA looked at the issue was in 2008, and the agency’s economic workup took 3.5 months, Babcock notes.

Waived RFS Would Cut Corn Prices by 28 cents

Babcock ran 500 scenarios on average 2012 corn yields that fell between 120 and 148 bu./acre. Using the average across all 500 yield estimates and eliminating the mandate for all of 2103 results in a 28-cent drop in the average annual price of corn.

The lower the corn yield actually is, though, the bigger the price decline would be if EPA decided to waive the mandate. In mid-July, forecasters had already reduced their expected corn yield to about 140 and 146 bushels per acre. Since then, corn conditions have deteriorated further.

"Ethanol plants probably cut production by 10 to 15% in June and July. The ethanol price relative to gas has thus gone up a bit, but refineries are finding ethanol is still a good octane source and are willing to pay for it," says Babcock. "Ethanol is bringing value to the market independent of any mandate." Babcock adds that the value proposition of ethanol makes it a strong competitor with livestock producers for corn—regardless of the mandate.

Due to large increases in the cost of their raw material as well as the possibility that EPA could waive the RFS, some ethanol plants are reportedly trying to get out of their natural gas contracts.

"If enough plants shut down, the price of ethanol will substantially increase," says Babcock. "Plants will stay open if they make more money open then closed."
 

 

For More Information
See how the 2012 drought is affecting other industries by reading AgWeb's drought coverage.

 



 

See Comments


 
Log In or Sign Up to comment

COMMENTS (11 Comments)

CHRIS -
Hey guys, its well-fare! The country if going broke and everyone worries if things "work for me "! Wow! How about getting govt out of agriculture and we make our living on our own!!! Burning food to make fuel when the ground is full of oil!! We have become slaves to the Govt!!! Get a spine men!!

10:25 AM Aug 8th
 
Brando - Wakefield, KS
A government mandating how much of a product a private company is REQUIRED to use is NOT "letting the markets work". If the article is correct, and the demand for ethanol will still be there, so what is the downside to repealing the mandate?
2:40 PM Aug 6th
 
Brando - Wakefield, KS
A government mandating how much of a product a private company is REQUIRED to use is NOT "letting the markets work". If the article is correct, and the demand for ethanol will still be there, so what is the downside to repealing the mandate?
2:40 PM Aug 6th
 
Cattletrkr - MN
Ethanol is a great use for EXCESS corn.
1:40 PM Aug 4th
 
Cattletrkr - MN
Ethanol is a great use for EXCESS corn.
1:40 PM Aug 4th
 
- Aurora, NE
Quit trying to change the rules in the middle of the game. If you lower the price of corn any at all it will cause more hardship on the poor guy that has a much reduced crop because of drought. Cattleman groups are being shortsighted in wanting RFS to be waived. They want cheap grain prices no matter if grain producer make a profit or not. So, the markets will work and eventually sort things out.Leave it alone.
3:53 PM Aug 3rd
 
Drake78 - Cherokee, IA
I don't see a ban on corn for ethanol. The crowd in Washington could not agree to it, especially in an election year.
I am concerned about starvation, but the people overseas eat very little yellow dent corn. I believe the Cattlemans group is only looking out for themselves, they didn't care about the corn growers when we sold grain under the cost of production for decades. We need the highs in the market to balance out the lows. If corn is too expensive to feed, sell out to someone who will feed it.
I fed cattle for 30 years and have grown corn for 40 years. Ethanol works for me.
1:15 PM Aug 3rd
 
TOM - KENNEWICK, WA
We need to ban the use of corn for fuel until the shortage is over.

Even if you are one of those growers who doesn't mind the idea of people in the third world starving so you can get a few more grand this year,

you should know that if you cause too many cattle to be liquidated then the small extra amount you make this year will be more than wiped out by the low demand problems you will face next year, and the year after, and after that until the numbers rebuild.

But another issue is that you are making yourselves unpopular with the general public and that is bad move for a group of people who want their government programs....
10:25 AM Aug 3rd
 
BRUCE - Jewell, KS
You can't really have one set of rules that will work for all situations all the time. The current conditions merit a review. As businessmen, it's imperative that the best interests of your customers, the consumers, are kept sacred. The last thing you want is 7B people really hungry people. Crowd control can be a huge problem.
5:02 AM Aug 3rd
 
- Aurora, NE
Quit trying to change the rules in the middle of the game. If you lower the price of corn any at all it will cause more hardship on the poor guy that has a much reduced crop because of drought. Cattleman groups are being shortsighted in wanting RFS to be waived. They want cheap grain prices no matter if grain producer make a profit or not. So, the markets will work and eventually sort things out.Leave it alone.
3:53 AM Aug 3rd
 



Name:

Comments:

Receive the latest news, information and commentary customized for you. Sign up to receive Beef Today's Cattle Drive today!. Interested in the latest prices for cattle in your area? See highlights of the latest for-sale cattle in the Cattle-Exchange eNewsletter.

 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions