Livestock Reps. Urge Action to Reduce/Address RFS Mandate for Ethanol Production

September 14, 2011 09:42 AM
 

via a special arrangement with Informa Economics, Inc.

Groups cite that as the key factor that has limited/tightened feed supplies

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Government mandates in support of ethanol production have become the main factor which has tightened feed supplies and put pressure on the US livestock industry, according to representatives that testified before a House Ag subcommittee examining the issue of feed supplies and the impact on the livestock industry.

The panel heard from representatives of the cattle, hog, broiler, turkey and US feed industry, with all of them saying the mandates for ethanol have created an artificial demand base that is competing against livestock interests for feed.

Link to access testimony.

Much of the testimony noted the significant costs incurred by livestock producers in 2007 and 2008 and again now with the main culprit cited being ethanol production.

Commodity market speculation was also listed as a factor in current corn prices, including the American Feed Industry Association (AFIA) via the testimony from Philip Greene. "Today – and for the foreseeable future if federal policies do not change – the feed industry faces the ‘perfect storm’ of influences that will weigh heavily on ingredient availability, with the cost of ingredients ratcheting higher due to artificial inflation of feedgrain and oilseed prices based on competition with US biofuel production, record export demand, adverse growing/harvesting conditions, and commodity futures markets which continue to be plagued by speculation."

While some did acknowledge the use of dried distillers grains (DDGs) and other byproducts of the ethanol production process, representatives of the poultry and hog sectors noted that their industries don’t universally have the ability to use a significant amount of these byproducts as a replacement for corn.

Specifically, Michael Welch, testifying on behalf of the National Chicken Council noted the footnote in the Supply & Demand Report which mentions the fact that the usage data for corn includes ethanol by products. "Statistically, such a footnote is correct, but at the same time, provides little, if any, solace to traditional uses of corn who find DDGs prices essentially the same as corn when adjusted for the feed value while adding to the complications of running a feed mill," Welch said.

Others decried government estimates that ethanol production is a factor of about 4 percent of the corn price, while private estimates suggest it is more like 30 percent to 40 percent.

Regarding the mandates for ethanol use, some of those criticized the U.S. ethanol industry from exporting nearly 1 billion gallons of ethanol – in other words, ethanol that won’t be used in the US as is the intention of the requirements under the RFS.

Some also were critical of efforts to expand the use of the ethanol via increasing the percentage of the currently corn-based fuel in the gasoline supply to 15 percent.

However, nearly all of those testifying did not complain about ethanol reducing the use of imported oil. But they chafed at the fact that after 30 years, there are still mandates and the blender’s credit and import duties on the fuel.

Several detailed the impact that higher feed prices have had on production of various livestock sectors, but noted that the ethanol industry is not subject to the same impacts due to the government usage mandates.

Improved efficiency by the livestock sector in the form of more pigs per litter or more poultry output was noted as what has helped make up for reductions in the breeding herds for some species.

So what does the US livestock industry want? Some suggested that lawmakers need to devise an "automatic waiver" of the Renewable Fuels Standard (RFS) in the event of a corn supply downturn, while others said they had no such plan but warned of dire consequences if the current trajectory continues.

Specific mentions were made of trimming or revisiting the ethanol use mandates for 2012 through 2015.

The most specific set of recommendations came from the National Chicken Council representative who noted the following as being their preferred plan of action:

  • Elimination of the Volumetric Ethanol Excise Tax Credit (VEETC) and import duty on ethanol

 

  • Have a partial or full waiver of the Renewable Fuels Standard (RFS) by filing a legal challenge with the Environmental Protection Agency or have legislation passed to permit individual states to opt-out of the federal ethanol mandate and/or legislation mandating a stocks-to-use trigger mechanism for the RFS

 

  • Minimize or prohibit further government subsidies and federal grants funding the building and expansion of infrastructure that encourages the manufacturing, distribution, and selling of corn-based ethanol

 

  • Remove without penalty non-environmentally sensitive cropland from USDA’s Conservation Reserve Program (CRP).

 

Comments: This issue is one that won’t easily be addressed or resolved, especially given the strong production base for ethanol production in a year in which the U.S. corn output is being projected to be less than the overall demand based of feed use, exports and corn used for ethanol production. Some of those testifying spoke of a need to improve output, but also noted that won’t help if there is a major supply disruption due to drought. Mentions that the U.S. has gone without a major and widespread drought for 23 years – the longest some said has been seen in the country – clearly shows the U.S. livestock industry is very concerned about what the future holds for their industry under the current price structure.

 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

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