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June 2008 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

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

Dairy’s stake in the Renewable Fuels fight

Jun 25, 2008

National Corn Grower Association (NCGA) president Ron Litterer hinted early last week to my colleague, Top Producer editor Greg Vincent, that NCGA might be willing to support a waiver to the Renewable Fuels Standard for ethanol.

But days later NCGA said the criteria for the waiver--severe harm to either the economy or the environment--had not been reached in Texas’ appeal for a 50% waiver to the 9 billion gallon mandate this year. One has to wonder what NCGA’s threshold for “severe harm” is with corn more than $7/bu and soybeans more than $15.
 
NCGA and ethanol boosters argue, and to some degree rightly so, that ethanol is not the sole reason for the run-up in feed prices. The weak U.S. dollar means U.S. grain exports remain strong. And a wet spring and June flooding from southern Indiana to eastern Iowa are responsible for the most recent price shocks. 

Ethanol proponents also point to rising world coarse grain production and ample,  2007 corn carryover stocks. “More than 1.4 billion bushels of corn--equivalent to 11% of the corn used for all purposes last year—were ‘carried over’ to this year,” says Bob Dinneen, president of the Renewable Fuels Association. “This carry-in will help ensure grain is available to corn users in the event of a short crop in 2008.”

But one has to wonder at what price. The grain trade—as well as just about every one who feeds livestock and/or eats three meals a day, is now waiting for next week’s June 30 USDA Acreage Report. It will begin to asses Midwest flood damage, and could spark the next price hikes. (Complete flood damage impacts will filter in through harvest.) Some speculate that as many as 3 million acres of corn have been lost. This could mean the loss of another ½ billion bushels of corn, since land currently under water is some of the Midwest’s most productive.

Despite all this, ethanol still looms large.

U.S. ethanol plants cooked up 5.7 billion gallons of ethanol in fiscal year 2006/07. And they’re on pace to produce 8.6 billion gallons this marketing year, says USDA.

That increased production over last year will consume another 1.1 billion bushels of corn. If you add in another 1 billion bushel loss due to the 8% reduced corn acreage this year and a half billion bushels from flood loss, that suggests the total amount of corn that could be available for food and feed this year could drop 20%. At the very least, those numbers quickly consume the 1.4 billion bushel carryover.

And note that the pressure doesn’t ease. What many people forget is that the original ethanol mandate for this year was 5.4 billion gallons. Last December, however,  President Bush signed the Energy Independence and Security Act. That immediately pushed the ethanol mandate to 9 billion gallons for 2008, an increase of 66% with the stroke of his pen (See chart below).

The renewable biofuel mandate—ethanol primarily from corn—then climbs to 10.5 billion gallons in 2009 and ratchets up to 15 billion gallons by 2015. This does not include any help from cellulosic ethanol—if it ever does become a reality. 

Today’s ethanol-from-corn consumes a fourth of the corn crop. By 2015, that number could jump to 35%--or more--depending on planted acres, yield jumps and whether ethanol tariffs on imports are ever reduced.

The June 30 Acreage Report is the near-term, immediate price worry. But the nightmare for dairy producers is not going away any time soon.

Renewable fuels standard

Year

Renewable
Biofuel

Advanced
Biofuel

Cellulosic
Biofuel

Biomass-based Diesel

Undifferentiated
Advanced Biofuel

Total RFS

2008

9.0

 

 

 

 

9.0

2009

10.5

.6

 

.5

0.1

11.1

2010

12

.95

.1

.65

0.2

12.95

2011

12.6

1.35

.25

.8

0.3

13.95

2012

13.2

2

.5

1

0.5

15.2

2013

13.8

2.75

1

 

1.75

16.55

2014

14.4

3.75

1.75

 

2

18.15

2015

15

5.5

3

 

2.5

20.5

2016

15

7.25

4.25

 

3.0

22.25

2017

15

9

5.5

 

3.5

24

2018

15

11

7

 

4.0

26

2019

15

13

8.5

 

4.5

28

2020

15

15

10.5

 

4.5

30

2021

15

18

13.5

 

4.5

33

2022

15

21

16

 

5

36

Source: Renewable Fuels Association



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