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Friday, June 17, 2011

Senate Votes Down Ethanol: Is It The End Of The Line?


The US Senate turned on a dime between Tuesday and Thursday and with 30 Senators switching their votes, the plug was pulled on the Volumetric Ethanol Excise Tax Credit which is the program that supports ethanol.  The immediate repeal of the program, which received support of 73 Senators, will have to be considered in the House, where the majority has been vocal about reducing the size of the federal budget, including the $5 billion tax credit received by ethanol blenders.  Is this the end to ethanol?

The surprising slap against the ethanol industry came after the Senate had previously approved substantial subsidies for the petroleum industry.  That disappointed President Bart Schott of the National Corn Growers, who said “Today the Senate voted against rural America and domestic, renewable energy, and in favor of more foreign oil.”  Schott pointed out that one comprehensive report found that subsidies for the oil industry total up to $280 billion annually, representing up to $2 per gallon of gasoline. A recent legislative effort to eliminate $2 billion of these oil subsidies went nowhere in Congress, he noted, after organizations like the National Taxpayers Union painted it as a tax increase.”

The National Farmers Union, which has long been a supporter of ethanol as a means of improving the farm economy, expressed its concerns, “NFU is extremely disappointed at the Senate’s decision to pass this short-sighted amendment. High energy prices are already damaging a very fragile economic recovery. This amendment, which cuts all tax credits for ethanol and biodiesel as of July 1, will push energy prices higher. A recent study by Iowa State University and the University of Wisconsin found that ethanol reduces gas prices by an average of 89 cents per gallon.”

Another producer group was quite pleased with the vote, and President Bill Donald of the National Cattlemen’s Beef Association called the Senate vote, “a giant step forward,” and he added, “Repealing the VEETC and the import tariff are important steps to fully leveling the playing field for a bushel of corn. We commend the 73 U.S. Senators who supported the Feinstein/Coburn amendment,” Donald said. “Cattlemen aren’t opposed to ethanol. But after 30 years and more than $30 billion in taxpayer support, the day has come to let the mature corn-based ethanol industry stand on its own two feet.”  Donald says the cattlemen want “compete head to head” and, “Passing the Feinstein/Coburn amendment sends a loud signal that it’s time to take the American taxpayer off the hook for the corn-based ethanol industry.”

Not too many years ago, the livestock industry supported corn growers and ethanol industries, but as prices of corn rose, which the livestock feeders saw as a result of ethanol demand, the criticism has been increasing about ethanol’s federal supports.

In a special email comment, the 25 X 25 Alliance, which supports renewable energy sources, believed the Senate vote “derailed efforts to put Americans on a path to a clean and secure energy future.  Policy chairman Bart Ruth, a NE farmer, said, “The 25x’25 Alliance believes the vote is wrong-headed and another example of policy makers taking a short-sighted view of a single component in the nation’s broad array of new and traditional energy resources. The political maneuverings preceding Thursday’s action put a spotlight on ill-planned efforts to address temporary, hot-button issues, all in the vacuum left without a comprehensive, wide-ranging and stable energy policy.”  The Alliance also raises some question about the future of the legislation, “The White House opposes any effort to kill the blenders’ tax credit, and the measure adopted today faces a “blue slip,” or rejection letter from the House because by killing the tax credit, the measure raises revenue, a function reserved by the Constitution for the House.”

The Renewable Fuels Association, which has been the primary proponent of ethanol, also cast doubt on the fact the legislation would pass the House and have any real impact, “As the underlying bill to which this amendment is attached is unlikely to make it to the president’s desk, this vote was a freebie with no real consequences. With this theater now in the past, the ethanol industry stands ready to work with the Senate, House, and the Obama Administration to enact thoughtful policies that responsibly address fiscal concerns while moving American ethanol production forward.”

Within 48 hours, the US Senate supported the continuation of ethanol programs and then voted to repeal them.  Thursday’s vote caused ire for corn growers and glee for cattlemen because of the separate sides they are on over the price of corn.  However, the Senate vote was symbolic, says the ethanol trade association because it will not be passed by the House and may spur the Congress into a longer term energy policy that includes ethanol

Posted by Stu Ellis on 06/17 at 12:00 AM | Permalink


Something happened today (June 23, 2011) that could change corn prices. The people that set policy for the US Government, I believe, are very smart people. Politicians may not fit that mold but the people in the agencies and cabinet positions seem to know what is going on. Their actions may not turn out as planned but their policies seem to be well thought out and targeted at a specific goal. The release of the oil reserve and the “agreement” of the Greece financial situation is probably no small coincidence. The “Government” seems to want to “talk down” oil prices. (High oil/gasoline prices are hurting the economic recovery. The more dollars that are spent on fuel the less that is available for other goods and services.) The possible resolution of the Greek situation should mean a return of a weaker dollar. A cheap dollar relates to higher priced crude oil. (Aside from 9 months in 2008, crude oil is + or - $15 per barrel from a linear relationship with the dollar index.) Higher crude means higher gasoline (unleaded gasoline has been generally within a 10% plus or minus range of a calculated value versus crude oil, aside from 9 months in 2008) which hurts consumer spending which “limits” economic growth. So the Government, knowing/hearing of a Greek/EU settlement enacted policy to try to “talk down” crude prices. Now the more speculative argument than that above, Verisun’s “undoing” was related to one sided hedging. They hedged corn but not the end product, ethanol. When corn prices fell, they could not cover cost with the declining ethanol price. It is assumed ethanol plants now hedge/managed the spread between corn prices and ethanol prices. This should limit their exposure if corn increases and/or ethanol prices decline. Should corn move high enough from the tight supply this year and next and ethanol price move low enough from the release of oil reverses, ethanol plants with a hedged/owned corn position may find it more profitable to quit production, profit from the higher corn price and fill ethanol contracts from purchased lower priced product in the open market. Yeah, this should result in a corn/ethanol price environment that should result in the resumption of ethanol production but only a relatively small percentage, maybe 5%, of US production would need to take these actions to mitigate the potentially tight corn supplies. The longer term impact of the release of the oil reserve is in question. (The quantities mentioned are large but small in terms of daily world use. The program requires refiners to replenish supplies used at a future date. Government price controls have had mixed results in the past.) The message is clear however; they want lower priced petroleum products. Any number of events double dip recession, Chinese economic slowdown or other events unseen could result in lower ethanol prices with “high” corn prices which may result in decrease corn use by a few ethanol producers. This decreased use might reduce corn supply tightness resulting in lower corn prices. Jib aka Gibberish

Posted by: Jib at June 24, 2011 3:03AM

ethanol; price of food went up; milage on vehicles went down; just two no nos against; the people are paying the bill AGAIN because of poor/ politics and leader ship in washington

Posted by: Jerry L Brocker at August 3, 2011 12:12PM

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