The folks from the Renewable Fuels Association are pointing to two university studies as proof any waiving of the Renewable Fuel Standard (RFS) would not significantly lower corn prices. The issue came to the forefront in the last few weeks as the drought pushed corn prices to record levels, and livestock groups look to the RFS waiver as relief from those prices. But this RFA news release points to a Purdue study (featured earlier here on Domestic Fuel in a webinar put on by Farm Foundation) and Iowa State University research that the drop in corn prices would be only about 5.6-7.4 percent. The webinar earlier today also showed the lower prices for producers and consumers at the grocery stores would not happen this year.
“The desire by livestock groups to see additional flexibility on ethanol mandates may not result in as large a drop in feed costs as they hope,” wrote Iowa State Professor Bruce Babcock. “…the flexibility built into the Renewable Fuels Standard allowing obligated parties to carry over blending credits (RINs) from previous years significantly lowers the economic impacts of a short crop, because it introduces flexibility into the mandate.”
Similar comments came from the authors of the Purdue study. “A partial waiver certainly is not a ‘stroke of the pen’ solution…” to record high corn prices, they wrote. “Corn prices pushed higher by the worst U.S. drought in half a century would not necessarily moderate if the federal government’s corn ethanol mandate were temporarily suspended,” according to a Purdue University press release announcing the release of the study.
“These economic analyses compellingly show that waiving the RFS is unnecessary and would be ineffective in meaningfully reducing corn prices,” RFA President and CEO Bob Dinneen said. “Congress and EPA built sufficient flexibilities into the RFS to ensure compliance is achievable even under the most abnormal and extreme circumstances, such as this summer’s drought. These studies recognize the impact of that built-in flexibility and show that a waiver would not significantly contribute any additional further relief from drought-induced high corn prices.”
You can hear the audio from today’s webinar here: Farm Foundation-Purdue Webinar on Drought and RFS Waiver
You can see the associated slide show here.
While a new report shows that a waiver of the Renewable Fuels Standard could drop corn prices, the impact would not be felt this year and could vary. The Purdue University report, entiled Potential Impacts of a Partial Waiver of the Ethanol Blending Rules, was authored by the school’s Wally Tyner, Farzad Taheripour and Christopher Hurt and presented today in a Farm Foundation webinar. It says corn prices could drop anywhere from 47 cents to $1.34 per bushel, depending on what level the drought impacts the final harvest, how big the waiver is, and how many unused Renewable Fuel Identification Numbers (RINs) are cashed in. But livestock producers and consumers would not see any benefit this year.
Tyner explained that technical and financial incentives could determine the impact of the waiver. “If refiners and blenders cannot change for technical reasons what they’re doing now, then a waiver has very little impact. But if they do have flexibility, then there is potential for a waiver having an impact,” Tyner said. Hurt added that there could be some unintended consequences, including what he calls demand destruction. “If we return to normal production in the next 12 months, then we have a fairly large supply, we have the possibility of looking at a 15 billion bushel corn crop with a utilization base of 11 billion bushels,” pointing out that we could see prices swing back to extremely low prices as quickly as they rose to these current high prices.
Paragon Economics’ Steve Meyer and the University of Minnesota’s Vernon Eidman were also listening in on the call and offering their perspectives. Meyer said the projected reduction in corn prices could translate into $2.60-3.50 per head on hogs. “We’re not talking about peanuts here.” But Eidman was quick to point out any RFS waiver would not impact corn use for ethanol this year. “It will take more time than that to get the rollback to occur,” Eidman said.
All on the webinar agreed that the EPA should not rush to issue any judgment until more complete information is known about the corn harvest, most likely in the next couple of months. “It’s important to get this right,” concluded Eidman.
It’s a really good conversation, and you can hear the entirety of it here: Farm Foundation-Purdue Webinar on Drought and RFS Waiver
You can see the associated slide show here.
Officials with the Renewable Fuels Association (RFA) say if the EPA grants a waiver to the Renewable Fuels Standard (RFS), it would not bring the hoped-for reduction in feed prices for livestock producers and lower prices for consumers at the grocery stores. The calls for the waiver grew louder after last Friday’s USDA crop report showed a 13 percent reduction in this year’s expected corn crop due to the drought.
During a webinar today, the RFA’s VP of Research and Analysis Geoff Cooper looked at the impact of the drought on the corn crop and what it means for ethanol production and the RFS. He pointed out that some groups, particularly the meat lobby, are trying to turn this to their advantage. “These are the same groups that have been gunning for the RFS for a number of years and attempted to strike while the iron is hot,” Cooper explained. But he says their arguments that the RFS is too inflexible and the ethanol industry won’t reduce its demand for corn in proportion to the reduction in the crop just don’t hold water. “We’ve seen corn consumption by the ethanol industry drop significantly in recent months,” adding that the record surplus supply stocks of ethanol and RINs have helped the industry still maintain its end of the RFS. “The flexibility in the RFS and the responsiveness of the market itself make a waiver completely unnecessary.”
Cooper added that consumers won’t see any significant price drops in their grocery bills if the RFS is waived. He highlighted recent research that shows the waiver would produce only a 4.6 percent reduction in corn prices at the commodity level, which translates to even less for consumers when you consider that only 14 cents of every food dollar spent goes toward the actual commodity… transportation costs, support, marketing, etc. make up the other 86 cents. And he noted that consumers would end up paying a lot more for gasoline as ethanol is credited with lowering gas prices $.84-$1.07 per gallon. “Really what’s driving higher gas prices, as you would expect, are higher crude oil prices and some of the problems in the refining sector.”
Cooper concluded saying the bottom line is the ethanol industry and the market are responding and sharing in the tighter corn stocks, there is enough flexibility in the RFS to make it through a leaner year like this one, and an RFS waiver won’t reduce prices for anyone.
You can listen to the entire webinar here (it’s a little long at just over an hour but well worth a listen):
RFA Webinar on RFS Waiver
Follow along with the slide presentation here.
Former Nebraska governor and senator and candidate for the Senate once again, Bob Kerrey, urged the crowd at the American Coalition for Ethanol conference Friday to fight for the industry.
“The only way you beat these guys is by fighting,” Kerrey said about the opponents of ethanol. “With the RFS, you cannot win this thing by being kind and gentle.”
Kerrey also urged Congress to get a farm bill passed as soon as possible. “The House needs to take this bill up and pass it,” he said. “The idea of an ad hoc disaster bill is a mistake. It’s not going to be good for agriculture, it’s not going to be good for ethanol, it’s not going to be good for the long term future of the American economy.”
Kerrey is the Democratic candidate to replace Sen. Ben Nelson (D-NE), facing Republican Deb Fisher who was invited to the ACE conference but was unable to attend.
Listen to Kerrey’s remarks here: Bob Kerrey of Nebraska remarks at ACE
Listen to interview with Kerrey here: Bob Kerrey Interview
2012 ACE Conference Photo Album
Despite a drought that is lowering the corn crop and causing ethanol plant shutdowns, American Coalition for Ethanol Executive Vice President Brian Jennings thinks the organization’s 25th annual conference last week was the most positive ever.
“We’re really encouraged and enthused about how the conference went,” said Jennings. “We know things are tough out there but we ended this conference on the most positive note I think we’ve ever ended a conference.”
Jennings was especially pleased with the strong support from Agriculture Secretary Tom Vilsack for both ethanol and the Renewable Fuel Standard and they agree with Vilsack’s view of keeping the RFS in place despite a lowered corn crop. “We won’t know how many bushels are produced until harvest,” he said. “It is premature for the calls that have been made to waive the RFS.”
Listen to my wrap-up interview with Brian Jennings here: ACE EVP Brian Jennings
2012 ACE Conference Photo Album
During the conference, three new board members were elected.
- Paul Enstad, Board of Governors Chairman for Granite Falls Energy, LLC, a 60 million-gallon-per-year (MGY) ethanol producer in Granite Falls, MN
- Doug Punke, CEO of Renewable Products Marketing Group (RPMG), an ethanol marketing company in Shakopee, MN
- John Christenson has joined the ACE board representing Christianson and Associates
In addition, four board members were re-elected.
- Ron Alverson, Wentworth, South Dakota, representing Dakota Ethanol
- David Gillen, White Lake, South Dakota, representing South Dakota Corn Utilization Council
- Wallie Hardie, Fairmount, North Dakota, representing North Dakota Corn Growers Association
- Brian Wilcox, Columbus, Nebraska, representing Nebraska Public Power District
Corn growers remain optimistic about the future, despite this year’s drought-devastated crop.
“It could all change tomorrow,” was the theme of National Corn Growers Association (NCGA) CEO Rick Tolman’s talk at the American Coalition for Ethanol conference in Omaha on Friday, just hours after the USDA released a new crop forecast showing a 13% drop in corn production this year compared to last. “This too shall pass,” said Tolman. “We think the future’s going to be bright still.”
“We were hoping for some miracles but they’re not there,” Tolman said in an interview. “It’s one of the worst situations we’ve had in the history of corn production in the United States, but it’s still the eighth largest crop we’ve ever produced.”
NCGA remains committed to maintaining the Renewable Fuel Standard corn ethanol requirement and Tolman said they are working to set the record straight about the RFS and correct misinformation that has been distributed by those who want to waive or dismantle the program. Most important is the inaccurate statement that more corn is used for ethanol than is used for livestock. “That is not true,” said Tolman. “More corn is GROUND for ethanol, but more still is consumed for livestock” when the co-product distillers grains is added to the equation.
Listen to my interview with Tolman at ACE: Interview with NCGA CEO Rick Tolman
Listen to Tolman’s comments at ACE: NCGA CEO Rick Tolman remarks at ACE
2012 ACE Conference Photo Album
During its 25th annual conference in Omaha Friday, the American Coalition for Ethanol (ACE) presented U.S. Senator Ben Nelson (D-NE) with the Merle Anderson Award for his leadership in supporting the renewable fuels industry while serving as Governor and Senator of Nebraska.
Nelson established the Governors’ Ethanol Coalition in 1991, helped create the first energy title in a farm bill, and played a key role in passing the Renewable Fuels Standard (RFS) in 2005, and the expanded RFS in 2007.
The Merle Anderson Award is named in honor of the founder and first president of ACE who serves as Chairman Emeritus of the ACE board of directors.
The senator, who is retiring this year after serving in the Senate since 2001, was honored by the award named after Anderson. “It’s very heartwarming to be considered in his company,” he said. “I’m just very proud.”
Nelson commented on work not done in Congress on a farm bill, which would include livestock assistance for livestock producers affected by the drought, and why that would help more than waiving the Renewable Fuel Standard. “We don’t want to go backwards trying to go forwards. There are other ways of dealing with this, we don’t have to start changing the RFS,” he said.
Listen to my interview with Sen. Nelson at ACE: Sen. Ben Nelson
2012 ACE Conference Photo Album
Renewable Fuels Association Vice President of Research and Analysis Geoff Cooper put together an analysis of today’s USDA crop supply report on the RFA E-xchange Blog to put the report into perspective from both a historical context as well as a global production context, answering calls from some international voices to end global biofuel production.
“As expected, this morning’s supply-demand estimates from USDA showed a big reduction in the size of the 2012 corn crop and average yield. Today’s report estimates average yield at 123.4 bushels per acre (bpa), down nearly 23 bpa from USDA’s July estimate and the lowest yield since 1995. Harvested acres are pegged at 87.4 million, meaning a crop of 10.78 billion bushels (bbu) is expected. This is down more than 2 billion bushels from USDA’s July estimate and would be the smallest crop since 2006. Today’s USDA numbers were slightly worse than expected by analysts; on average, they had expected a crop of 10.97 bbu on a yield of 126.2 bpa. While this year’s harvest will be considerably smaller than initially expected, it is remarkable that farmers are still expected to produce the eighth-largest corn crop on record despite experiencing the worst drought in 50 years and the hottest month of July in recorded history.”
Listen to an interview with Cooper here: RFA's Geoff Cooper on USDA crop forecast
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Agriculture Secretary Tom Vilsack demonstrated his strong commitment to the ethanol industry and the Renewable Fuel Standard (RFS) by spending over an hour at the American Coalition for Ethanol (ACE) conference on Friday morning.
“This is an industry that is worth supporting,” he told the crowd of about 250 ethanol industry leaders. “Which is why the president is supporting the Renewable Fuel Standard, and it’s why I’m supporting the Renewable Fuel Standard.”
In light of the lowered crop forecast for corn due to the drought, Vilsack noted that the RFS has built-in flexibilities and the market is responding as it should. “The market responds, the market reacts, the market pays attention, and we’re already seeing that,” he said.
Vilsack stressed the need for the industry to defend itself in the face of attacks by critics.
Listen to Vilsack’s remarks here: Secy Vilsack at ACE
2012 ACE Conference Photo Album
Despite the lack of rain that is occurring across the U.S. this summer, the Iowa Renewable Fuels Association (IFRA) has released a list of 10 ways ethanol producers are helping livestock farmers during the drought. IRFA says that although the drought is having a profound impact on crop production, because of ethanol production, there is larger corn crop and more flexible supply than ever available during other drought periods.
“Today’s USDA report confirms what we already knew – that the drought’s impact on supply and price will be felt by corn consumers around the world,” said IRFA Executive Director Monte Shaw. “Yet, the ag sector has seen droughts before, and it will survive again. This is a time when all of agriculture should pull together. Unfortunately, national livestock trade associations have chosen to politicize the on-going drought as part of their multi-year effort to return corn prices to $2 per bushel. At times like this, it is important to look past the rhetoric to the facts.”
During the American Coalition for Ethanol 25th Annual Conference, Cindy Zimmerman sat down with Shaw to discuss the call for a waiver of the Renewable Fuel Standard (RFS) with many of the calls coming from the livestock industry. They also discussed 10 ways ethanol producers are helping livestock producers during this tough time.
Monte Shaw interview at ACE
Ethanol helps all types of livestock producers. “We have a better price of corn. It makes them more competitive against the integrators,” explained Shaw. “But then we also have the distillers grains. And if you think about it, we planted 95 million acres of corn this year instead of 75 million because of ethanol. So yes, we’re taking a nasty hit from this drought and this is going to cause pain among all corn users, but we’re going to have a much bigger crop than we would have otherwise.”
“And then the ethanol industry returns that 20 million additional acres of protein goes straight to the livestock industry. So we have 20 additional acres of protein that would not be out in the market, the feed market, if it weren’t for the ethanol industry,” he added. Continue reading