Drumbeat For Ethanol Waiver Likely To Get Louder

(August 17, 2012) Last week’s USDA crop production report sharply lowered 2012 corn harvest expectations, increasing fears of inadequate supplies and higher prices for food and feed. It’s also increased the drumbeat for a waiver of federal renewable fuels standards covering ethanol,  Dairy Profit Weekly’s Dave Natzke reported on Friday’s DairyLine:

 

Corn is the biggest U.S. crop, and when production rises or falls, the impact is felt throughout the economy. With this year’s drought, USDA cut corn production estimates to about 10.8 billion bushels, the smallest harvest since 2006, and end-of-year corn inventories are expected to be the lowest since 1996.

 

As you might guess, Bill, that’s had a major impact on prices, which have risen sharply. This year’s average corn price is now forecast to be up 30% from last year, and by as much as 70% from forecasts before the drought. And, while USDA’s latest estimate cut expected ethanol use of corn (to 4.5 billion bushels), it’s still projected to use about 40% of the anticipated corn harvest, equal to the average of the past two years.

 

Concerns over both supply and price have prompted an outcry from livestock and dairy farmers, food companies, and lawmakers, who have petitioned the U.S. Environmental Protection Agency to waive the Renewable Fuel Standard mandating levels of ethanol use. Under that standard, about 13.2 billion gallons of corn-based ethanol will be blended with gasoline this year, rising to 13.8 billion gallons next year.

 

Objecting to a waiver, ethanol industry leaders say tighter supplies and higher prices also affect them, and that market fundamentals will make a waiver unnecessary. Weekly corn use for ethanol production has been averaging about 12-and-one-half million bushels, down about 2 million bushels from earlier this year.

 

So far, Bill, EPA has denied requests for an ethanol waiver, but as the drought-impacted corn harvest progresses and elections get closer, the drumbeat for a waiver is likely to get louder.