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Ethanol Mandate in Crosshair

October 15, 2012
By: Sara Schafer, Farm Journal Media Business and Crops Editor

Pressure is on EPA to waive Renewable Fuels Standard

Odds are that not enough corn will be harvested this year to meet the wants and needs of major end users. USDA’s September estimate for corn production stands at 10.727 billion bushels, which is down 13% from 2011 and the lowest U.S. production since 2006.

This dramatic reduction in  supply was the driving force behind the recent skyrocket in corn prices. Livestock producers, ethanol plants and importers have been making needed cutbacks in consumption and crunching the numbers to determine just how much they can pay.

Because of high corn prices, many cattle, pork and poultry organizations are calling for a waiver of the Renewable Fuels Standard (RFS), which requires 13.2 billion gallons of corn-based ethanol to be produced in 2012. Around 4.7 billion bushels of corn will be needed to reach that production level. For 2013, 13.8 billion gallons are required, which will consume 4.9 billion bushels of corn.

Rob Vandenheuvel, general manager of California’s Milk Producers Council, says his organization strongly opposes the RFS. "Dairy and other livestock farmers compete with ethanol plants for a corn supply. A waiver of the ethanol mandate would put ethanol plants and livestock farmers on the same playing field, eliminating the federal government’s role in picking who does and doesn’t get fair access to the corn production," he says.

Garry Niemeyer, an Auburn, Ill., farmer and president of the National Corn Growers Association, says that while he understands the pain and financial stress livestock producers are
experiencing, he doesn’t believe an RFS waiver will solve the problem. "The drought is what caused economic harm this year, not the RFS.

"We think it is way too premature to require a waiver because we do not know the final yield of the corn crop." Additionally, he says, if ethanol production were to be decreased, so would the supply of distillers’ grains.

Ethanol Economics. Chris Hurt, a Purdue University agricultural economist, was part of a team that studied how a waiver of the federal ethanol mandate might affect the corn and ethanol markets. He says the cost of ethanol is so cheap compared with wholesale gasoline that corn prices would have to drastically increase (to around $9.50) or crude oil would have to drop $20 or so, to $75 per barrel. "Neither of those looks likely."

The other main factor is that oil companies might not have the mechanical or technical flexibility to change their blending amounts.

"The oil industry will look at what’s the best economics. If the Environmental Protection Agency reduces the mandate, it may not reduce the amount of corn that would go into domestic ethanol production," Hurt says. The RFS is a minimum amount of required ethanol, so Congress would have to set a maximum amount to limit the amount of corn going into ethanol.

If a waiver was put in place and the oil refiners and blenders had flexibility with their ethanol use, the study shows, corn prices could be reduced between 47¢ and $1.30 per bushel, depending on the size of the waiver.

Regardless, Hurt says, the demand destruction from this year’s short corn crop will not be easy to rectify. If an average corn crop is harvested next year, ethanol plants could quickly renew capacity. "But when you  destroy demand in the livestock industry, you don’t just flip a switch and turn it back on."

The poultry industry can recover within a year, hog production will take at least two years and the beef industry has the longest lag. 

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FEATURED IN: Top Producer - October 2012

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COMMENTS (4 Comments)

Ben - Aurora, IL
This is what happens when the government has its finger in every pie. Ethanol is or was tax incentivized, and it use mandated not by the market but by governemtn fiat. Corn producers have received price and loan subsidies for many many years. Food producers recieved subsidies in the form of food stamps to allow their customers to buy more and better groceries. At his monment, the food producers are trying to screw the feed producers out of therir ssubsidized profits, and feed producers are cutitng of thier noses to spite thier face. The best sulution is to gradually remove the subsidies and let the markets perfomr thier roles.
7:25 AM Oct 16th
Felix Gorges - Goddard, KS
Hey Finger,
Did you have to spend over 8 hours on your air conditioned ass. Sorry about that, but your gravy train days are just about over.
11:03 PM Oct 15th
PullMyFinger - Chappell, NE
Sure didn't hear much outcry for the past 60 years when all grains were selling for 18th century prices and farmers were going under in droves. What goes around comes around. When grain is cheap enough to burn - burn baby burn.
6:00 PM Oct 15th
Felix Gorges - Goddard, KS
Can you imagine the outcry if they were unloading livestock and tankers of milk into a plant to make fuel? It is really the same thing. The comment from president of the corn growers shouldn't even be taken seriously. They are protecting their own interests. The RFS waiver needs to be permanent. Not just temporary.
12:53 PM Oct 15th



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