Ethanol debates: Renewable fuel standard causes concernWritten by Saige Albert
During the week of July 30, a coalition of meat and poultry organizations and 159 members of the U.S. House of Representatives approached the EPA asking for a waiver of the federal mandate for ethanol production.
Background on the RFS
In 2005, the renewable fuel standard was created under the Energy Policy Act of 2005. The original standard required 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012.
“Under the Energy Independence and Security Act of 2007, the RFS program was expanded in several key ways,” says the EPA, listing inclusion of diesel, increasing the volume to 36 billion gallons by 2022, and establishment of new categories of renewable fuel as some changes.
EPA adds, “RFS2 lays the foundation for achieving significant reductions of greenhouse gas emissions from the use of renewable fuels, for reducing imported petroleum and encouraging the development and expansion of our nation’s renewable fuels sector.”
The 2007 mandate requires refiners to utilize 13.2 billion gallons of ethanol this year, with that number increasing to 13.8 billion gallons in 2013. At those levels, 4.7 billion bushels and 4.9 billion bushels of corn, respectively, would be required by the industry.
Cause for concern?
The coalition of livestock groups and Congressmen filed a petition that said, “It is abundantly clear that sufficient harm is occurring now and that economic conditions affecting grain supplies and feed prices will worsen in the months ahead. Both conditions provide an independent basis for a waiver of the RFS.”
With corn prices high, CME Group says livestock producers could be forced out of business in facing high feed costs.
They additionally refer to the EPA position on the RFS as a “wild card,” asking, “At what point does the impact of high feed costs on livestock producers becomes high enough to warrant a temporary waiver of the mandate?”
However, the group acknowledges that the decision is a political one and, in light of the election year, coming to an agreement become more complicated.
The National Corn Growers Association (NCGA) encouraged producers to remember that, while the drought is severe, the corn crop is still in the field, and yield forecasts are just predictions.
“We won’t know the actual size of the 2012 corn crop until months from now. In the meantime, the market is working,” said NCGA President Garry Niemeyer in a press release. “All corn users are responding to market signals. Ethanol production and exports are down.”
He also added that a current surplus of ethanol in the U.S. will reduce demand on the U.S. corn crop.
“When it comes to the renewable fuel standard for ethanol and other biofuels, now is not the time for changes. It’s working,” comments Niemeyer. “The RFS is revitalizing rural America, reducing our dependence on foreign fuel and reducing the cost of gasoline. Making changes to the RFS now would only ensure that consumers suffer due to significantly higher fuel prices.”
The American Corn Growers Foundation (ACGF) also adds that drought has caused tight corn supplies, not ethanol production, and the by-products of ethanol production are still used as livestock feed.
“Consumers, livestock feeders and politicians all need to acknowledge that only the starch from corn is used in ethanol production,” explains Gale Lush, chairman of ACGF. “The protein, minerals and oil from that same corn kernel still provides abundant feed for the livestock sector, which is where most of the corn supply would have gone in the first place.”
The ethanol industry
From the other side, members of the ethanol industry have said that instituting a waiver or suspension of the RFS is “non-supportive” and “changes the rules of the game in the middle.”
One representative explained that the RFS has incorporated provisions for flexibility to accommodate shortages, such as those that are happening now. The industry is also making adjustments in light of supply concerns.
“The ethanol industry has reduced production by at least 15 percent over the last six months,” he said.
With the RFS a hot topic in the news and the political climate in the U.S. becoming increasingly volatile, the outcome of the RFS and petition to the EPA is still unknown.
Corn prices increase
On Aug. 8, CME Group reported that corn futures for September increased to $8.15. Corn for December delivery rose 16 cents, or two percent, to $8.165 per bushel.
Doane Advisory Services reported on the same day that corn futures closed eight to 14 cents higher overall, garnering strength from high cattle and soybean price action.
“Light rain forecast for portions of the Corn Belt over the next few days held price in check early, but anxiety over prospects for sharply lower production estimates from USDA on Aug. 3 sparked renewed buying,” said Doane Advisory Services.
Prices have increased since the release of the USDA World Agriculture Supply and Demand Estimates (WASDE), which predicted corn yield to be an additional 20 bushels per acre lower, at 146 bushels per ace. The most recent WASDE report was issued on Aug. 10.