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Ethanol quota waiver fight intensifies

Looking to cushion the forecast of diminishing U.S. corn yield, a myriad group of domestic and international interests has called on the EPA to waive the government-mandated Renewable Fuel Standard, which places a quota on ethanol production. Commodity and farm groups strongly refute the notion that granting a waiver will make a significant difference in the markets.

The convergence of high heat, lingering drought, rising livestock feed prices and fear of the same for world food prices has put a rapidly diminishing U.S. corn yield in the spotlight. The August 10 USDA corn forecast – an expected 10.8 billion bushels, slashed over 2 billion bushels since the last report -- have only intensified focus on the crop.

“Based on conditions as of Aug. 1, yields are expected to average 123.4 bushels per acre, down 22.6 bushels from last month,” writes Elton Robinson, Delta Farm Press editor. “If realized, this will be the lowest average yield since 1995. Area harvested for grain is forecast at 87.4 million acres, down 2 percent from the June forecast but up 4 percent from 2011.”

For the latest on the U.S. corn crop, see here and here.

Looking to cushion the impact of such news, a myriad group of domestic and international interests – including U.N. Food and Agriculture Organization Director General José Graziano da Silva-- have called on the EPA to waive the government-mandated Renewable Fuel Standard (RFS), which places a quota on ethanol production. The RFS requires 13.2 billion gallons of corn-based ethanol be produced in 2012 (requiring some 4.7 billion bushels of corn) and 13.8 billion gallons in 2013 (requiring 4.9 billion bushels of corn).

Reiterating a long-standing grievance that ethanol is a major factor in the increase of feed prices, on August 2 a coalition of ranchers and poultry producers petitioned EPA administrator Lisa Jackson to waive the RFS for the rest of 2012 and at least part of 2013.

For more, see here and here.

On August 7, Jackson also received letters signed by around 180 members of the House and Senate asking for a waiver.

Commodity and farm groups strongly refute the notion that granting a waiver will make a significant difference in the markets.

“The August USDA crop report confirms our concerns that corn production may be several billion bushels less than previously anticipated, due to a summer heat wave which kept temperature well above normal and offered only sporadic rain,” said Garry Niemeyer, National Corn Growers Association President.

Urging a “level perspective” Niemeyer said that “while speculators aiming for personal gain and emotionally charged decisions may drive corn prices beyond justifiable levels in the short term, these factors will subside. As it always has, the market will correct and continue to effectively allocate the corn supply for our various customers.”

Recent analysis, said Niemeyer, “suggests that the current need for octane in gasoline is driving ethanol demand, rather than the RFS. Corn going for ethanol use, about one quarter of total corn supply, is subject to the same market forces that all customers of corn are currently facing.”

On Friday, Niemeyer’s views were largely echoed by Agriculture Secretary Tom Vilsack. Speaking at the American Coalition for Ethanol, Vilsack reiterated the Obama administration’s fondness for biofuels. “This is an industry that is worth supporting. Which is why the president is supporting the Renewable Fuel Standard, and it’s why I’m supporting the Renewable Fuel Standard. … The market responds, the market reacts, the market pays attention, and we’re already seeing that.”

While animal feed prices led the charge against the RFS, the potential impact of a short U.S. corn crop on world food prices has joined the battle.

“We’ve been critical of similar policies in Europe and other countries because of the disastrous competition between food and fuel that it helps exacerbate,” Gawain Kripke, director of policy and research for Oxfam America, told Farm Press on August 7. “It’s no prejudice against corn farmers to say that this intervention by the government is problematic.

“In general, we think (the RFS) needs revision and review. It’s clearly an exacerbating factor in food prices and food price volatility.”

Ethanol advocates quickly responded to such claims.

“The flexibility of the RFS and the market are the most effective way of reducing demand for corn during these difficult times,” said the Global Renewable Fuels Alliance in a statement. “Already we have seen U.S. ethanol production curtailed by 14 percent this year while refiners are sitting on 2.6 billion RFS credits that can be used to meet their compliance obligations. This market flexibility combined with large ethanol stocks makes the waiver of the U.S. RFS unnecessary.

“Globally, total grain output is expected to drop by 2.9 percent this year, but this global production is still expected to be the second largest in history with grain ending stocks 4 percent above the 10-year average. It is also worth noting that the U.S. ethanol industry will use only 2.9 percent (net) of the world grain supply. In short, any calls for the indiscriminant waiver of the U.S. RFS this year is unjustified.”

As crushing drought, heat and input costs continue to hurt the livestock industry, such claims ring hollow for many ranchers.

“We find it concerning that these mandates are allowed to continue today in the worst drought I have seen in my lifetime,” said J.D. Alexander, a Nebraska cattleman and president of the National Cattlemen’s Beef Association. “Seventy percent of cattle country is under drought conditions -- this is not isolated to a certain part of the country.”

For more, see here.

“One has to wonder how bad the drought has to get before EPA uses its authority to grant a RFS waiver,” said Alexander. “This isn’t rocket science. Let the market work.”

For full drought coverage, see here.

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