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Monday, July 30, 2012

The Drought Has Ratcheted Up Emotions Over Corn Prices And Supplies


The Civil War pitted brother against brother and fathers against sons and tensions are getting similarly heated as agriculture works through the wrenching drought.  With feed prices high and supplies scarce, livestock organizations have taken an official position to unwind part of the Renewable Fuels Standard the corn industry used to build the ethanol market.   Putting the livestock industry at opposite ends with corn growers is akin to a civil war in agriculture.  Unfortunately, the philosophical differences are not just separating farm organizations, but challenging individuals to fight within their own emotions.
The action came within the US Environmental Protection Agency, which administers the Renewable Fuels Standard that determines how much ethanol is needed for the nation’s motor fuel supply.  Since its establishment 5 years ago, the volume has been ratcheted upward.  For 2012, 13.2 billion gallons are mandated, with 13.8 billion in 2013.  To refine that much ethanol, it will take 4.7 billion bushels of corn this year and 4.8 billion next year.
Contending that will take too much corn away from the market in a year of short supplies, 17 livestock groups <a href="" title="petitioned "><b>petitioned </b></a>the EPA to either waive or partially waive the requirement until there is a better supply of corn.   The petition states, “The drought-induced reductions in the corn supply means that the mandated utilization of corn for renewable fuels will so reduce the supply of corn and increase its price that livestock and poultry producers will be forced to reduce the size of their herds and flocks, causing some to go out of business and jobs to be lost. In addition to this direct harm, these herd and flock reductions will ripple through the meat, milk and poultry sectors, causing severe harm in the form of more job and economic losses. This drought-induced harm exists now, will continue to exist into the latter part of 2012 and 2013, and could continue to be felt in 2014 depending on the policy choices made now.”
The livestock, meat, and dairy groups are not only concerned about the availability of supplies, but also the price of corn, which they say will rise more than normally because of the RFS mandate, “At a yield of 156 bushels per acre, the mandate increases the price of corn by approximately 80 cents, while at 135 bushels per acre, the effect of the mandate alone is over $2.50 per bushel.”  The petition adds, “For those who produce pork, beef, milk, and poultry, this represents a dire outcome. Prices for feed have risen substantially and will likely rise further. In some regions, feed availability will be substantially disrupted, forcing long distance shipping and challenges in financing its acquisition.”
The group, which is lead by the National Pork Producers Council and the National Cattlemen’s Beef Association, request that the waiver of the RFS last a full year to allow the full effects of the 2012 short corn crop to work through the system. While EPA has recognized that it may be able to grant a waiver over a “marketing year” we believe that the Agency can either utilize this concept or otherwise tailor the requirements … to address the real-world continuing impacts of high corn prices and short supply, granting a waiver to alleviate these conditions for as long as they are reasonably projected to last, subject only to the 1 year statutory limitation.”
The action by the meat groups may not have been a surprise to a group like the National Corn Growers Association, which said, “NCGA stands firm in its support of the Renewable Fuel Standard and will strongly oppose legislation to alter or repeal the RFS. Likewise, we believe it is premature for a waiver of the RFS provisions at this point. With the crop still in the field, it is too early to determine this year’s final corn supply. In addition, the ethanol industry now has a significant surplus of ethanol and RFS credits that can greatly offset ethanol’s impact on the corn supply. 
“However, we recognize the severe impact of the drought on our farmers and our customers, here and abroad, with livestock, poultry, ethanol and other processing facilities, and we believe the flexibility of the RFS does work, and will work. NCGA also supports the waiver process that is embodied in the current RFS, and respects the right of those that may file a waiver petition to do so.”  And NCGA added, “Many of our farmer members are suffering immensely from the drought. Many are also in the same predicament as our customers because they have livestock or own ethanol plant shares. Now is the time for all of American agriculture to pull together and work together for solutions that benefit us all.”
Seventeen meat and dairy groups, lead by the national pork and beef organizations, have formally asked the EPA to waive the requirement for the national to produce over 13 billion gallons of ethanol this year, freeing up 4.5 billion bushels of corn.  The groups say the supply of corn is needed for livestock and to ensure prices do not drive livestock producers out of business.  The corn growers has opposed the action, saying it is too early to know how much of a corn deficit there will be and there should be efforts to work together, not separate farmer organizations. 

Posted by Stu Ellis on 07/30 at 09:39 PM | Permalink

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