On Thursday (Oct. 11), the USDA’s downward revision of the drought-hit U.S. corn crop (from 10.73 billion bushels to 10.71 billion bushels) was followed by an unsurprising rise in the market price for the commodity, which hit over $7.74 per bushel.
While farmers cheered the price bump – both wheat and soybeans also enjoyed increased prices -- the tug-of-war between the livestock/poultry sectors and ethanol industry over the dwindling corn supply shows no sign that either side is about to give ground. In fact, recent events have only led to more resolve by the competitors.
And right now the focus of debate is the Renewable Fuel Standard (RFS), a government mandate requiring 13.2 billion gallons of ethanol be blended into the 2012 U.S. fuel supply. That mandate, which became law in 2005, calls for 13.8 billion gallons in 2013.
The RFS has long been a target for those claiming it has unfairly impacted animal feed prices and led to the demise of thousands of U.S. livestock, poultry and dairy operations alongside rising world food prices. In response to these factors, in recent months, a loose group of RFS naysayers has petitioned the EPA to waive the mandate until conditions are more favorable.
The EPA -- expected to make a ruling on the RFS in November – is also being pushed by politicians to rule in favor of the suspension. Governors of Arkansas and North Carolina asked for an RFS waiver in late August, triggering the EPA review. Since then, governors from Delaware, Georgia, Maryland, New Mexico and Texas – along with 156 U.S. Representatives and 34 U.S. Senators – have joined in.
The latest lawmaker asking the EPA for a waiver is Utah Sen. Orrin Hatch, who wrote EPA administrator Lisa Jackson a letter on Wednesday: “In the face of corn shortages and escalating prices brought on by wide-spread droughts throughout the United States, I urge you to exercise your waiver authority to modify the corn-ethanol requirements for the Renewable Fuel Standards.”
Push-back against efforts to waive the RFS has been quick and vigorous. Rejecting the connection between the mandate/ethanol and high corn/feed prices, renewable fuel and farm groups formed a coalition in late September. Fuels America counts the National Association of Wheat Growers, National Corn Growers Association (NCGA), National Farmers Union, National Sorghum Producers, 25x25, Abengoa Bioenergy, ACORE, Advanced Ethanol Council, American Coalition for Ethanol, American Security Project, Biotechnology Industry Organization, DuPont, Growth Energy, Novozymes, POET and the Renewable Fuels Association among its members.
“In joining Fuels America, NCGA joins a broad spectrum of renewable fuel stakeholders to increase the effectiveness of our efforts in the defense of ethanol and other biofuels,” said NCGA President Garry Niemeyer, a farmer from Auburn, Ill., in a statement. “Corn farmers support ethanol and other biofuels not only because they are essential to the continued growth of rural economies but also because they play an essential role in ensuring the future of our nation. Domestically produced, renewable fuels create American jobs and increase national energy independence. Renewable fuels are a win-win solution to many of the energy problems facing our nation, and we believe that it is our duty to bring this truth to our representatives in Washington and to citizens across the country.”
In a letter to Jackson supporting the RFS, ASA president Steve Wellman said that “waiving the biomass-based diesel portion of the RFS will not in any way alleviate the impacts of the drought. Increased biodiesel use helps to grow diversity in our nation’s fuel supply, which in turn, reduces our vulnerability to inflated global oil prices which are the real drivers behind increased food costs because of higher food processing and transport costs.”
The coalition is now pointing to studies showing claims that lessening corn use for ethanol will lead to better conditions for the livestock sector are overblown. A report by the well-respected Food and Agriculture Policy Research Institute (FAPRI) concludes that a full waiver of the RFS “would result in an insignificant decrease in corn prices -- only about 4 cents per bushel,” according to Ron Smith, editor of Southwest Farm Press.“The study also found that the waiver ‘might’ cause corn ethanol production to slip by just 1.3 percent, while corn available for livestock ‘might’ increase 0.6 percent.”
Smith says the FAPRI report “indicated that a waiver for 2012/13 would have ‘no effect on retail beef prices in 2013, and might shave 1 cent per pound off retail pork prices.’”
Read Smith’s story here.
A second study, conducted by Cardno-ENTRIX and commissioned by the Renewable Fuels Association (RFA), concludes an RFS waiver resulting in lower fuel output would mean only “trivial corn price reductions … partially or fully offset by increased prices for other feed ingredients like distillers grains (DDGS) and soybean meal,” according to an RFA statement.
“Distillers grains, corn gluten feed and corn gluten meal are co-products of ethanol production that are fed to livestock and poultry across the country,” the RFA statement continued. “Every bushel of corn processed by an ethanol plant produces 2.7-2.8 gallons of ethanol and approximately 16-17 pounds of animal feed. The U.S. ethanol industry produced some 40-42 million tons of animal feed in 2011, including 37-38 million tons of distillers grains.”
Meanwhile, waiver-supporting Oxfam America has analysis of its own that “shows that while fundamental supply and demand factors will continue to buoy food prices, waiving the ethanol mandate will lead to a reduction in the price of corn with knock-on effects for other raw commodities and processed foods such as meat, eggs and dairy. … Estimates suggest that waiving the biofuel mandate will lead to a 7.4 percent drop in corn prices, from $7.82 per bushel under a status quo scenario to $7.24 per bushel if a waiver is implemented. This represents a small but important decline in prices that will reduce food price pressures generally and contribute to a more stable global environment for trade in agricultural commodities.”