Ethanol mandate not going away anytime soon

Feb 1, 2013

With Environmental Protection Agency (EPA) Administrator Lisa Jackson resigning after four years, the president of the National Cattlemen’s Beef Association (NCBA) doubts the EPA’s corn-based ethanol mandate will be revoked soon despite a drastic reduction of corn available for cattle feed and a sharp spike in its cost.

A relentless drought grips the nation and has brought about a steep drop in the nation’s corn production, nearly doubling its price in a short time.

The EPA’s Renewable Fuel Standard (RFS) requires that 40 percent of the nation’s corn be converted into ethanol or 15 billion gallons of ethanol be blended into the U.S. transportation fuel supply by 2022. This year’s target is 13.2 billion gallons as opposed to 2012’s 13.8 billion gallons.

In July, a group of livestock producers filed a petition with EPA to grant a one-year waiver on the ethanol mandate, but the federal agency declined to do so in November, dealing the nation’s livestock industry a major setback as ranchers and feedlots cope with exorbitant overhead costs straining their budgets to the snapping point.

The U.S. livestock industry believes the mandate unfairly damages them while it boosts returns for crop producers.

EPA has the authority to waive the requirement in part or entirely if it determines the ethanol mandate causes severe environmental or economic harm. More than 60 percent of the nation is in the throes of a drought ranging from serious to severe.

EPA has yet to publish its fuel standard volume requirements for this year, which have been overdue since November. It now says it will issue the standard as a proposal rather than a direct final rule to avoid strong opposition from the petroleum industry.

EPA last July sent its proposed controversial rule for 2013 to the White House Office of Management and Budget, where it remains.

J.D. Alexander, a Nebraska rancher whose annual term as NCBA president ends in February, said he does not know if or when EPA will revisit the RFS. Livestock organizations argue that now is no time to convert dwindling corn stocks from food to fuel.

The mandate could be rolled back if pressure mounts on the new EPA administrator or if commodity groups unite to support legislation repealing it, but Alexander told the Western Livestock Journal he is not optimistic that will occur. It has had a severe effect on the cattle industry, he said.

It has been estimated that the loss of 11 percent of the world’s corn to ethanol leads to a 68 percent hike in corn prices without factoring in the mandate’s effect.

“We’ve got record high prices of corn. The higher price is in direct correlation to costs of gain for the cattle. We’ve got extremely high cost of gains and lack of profitability in the cattle industry mainly from the high cost of grains,” Alexander said.

Cost of gain is determined by dividing the total cost of feed by the total pounds gained.

“All we’re asking is to compete for corn on a level playing field and let the market determine where it will go and at what price. Our belief is ethanol is a mature market and should stand on its own feet,” he said, referring to the RFS.

When the RFS was initiated in 2005, the nation’s drought was not at today’s extremes—the worst in 50 years. “Forecasters are saying we are by no means out of this drought,” Alexander said. “Evidently, the powers that be must not think it’s severe enough to waive it. If this isn’t severe enough, what will get them to change it?” USDA has reported that U.S. cattle herds are at their lowest numbers in 60 years as livestock producers reduce them in response to drought parching grazing lands, decimating crops, drying up water sources and driving up feed prices.

Corn now fetches $7 to $8 a bushel when not that long ago it was going for $3 to $4 a bushel. “It’s literally at least double the price from what it’s been the last several years,” Alexander said. Some analysts have warned it could climb to $10 a bushel.

While the livestock industry is enjoying record high prices for cattle, “they do not equate to profitability. Most segments of the industry are losing money on cattle. Eventually, consumers will see higher prices for all proteins because of the higher price of corn,” Alexander said. “Cattle producers are always eternally optimistic, but I would have to tell you right now conditions are certainly challenging,” he said, adding if and when herd numbers turn around, it will take at least three years to rebuild them.

The closure of a Cargill meat packing plant in Plainview, TX, has been blamed on the drought cutting cattle numbers by as much as 700,000 head throughout the central U.S.

“There is still a lot of kill capacity for slaughter,” Alexander said, noting fed cattle will now need to be shipped to other beef processing plants. “Realistically, it should not change anything. We still have plenty of capacity to process or fabricate cattle.”

Meanwhile, not all is well with the ethanol industry, either. Abengoa Bioenergy has announced that it will temporarily shut down production at its York and Ravenna ethanol plants in Nebraska because of the unfavorable market for the corn-based fuel.

The York plant has stopped receiving grain. It annually has consumed 520,000 tons of corn and produced 56 million gallons of ethanol. A few other Nebraska ethanol plants also are operated in fits and starts.

In dealing with the “fiscal cliff” crisis, the U.S. Senate extended a farm bill for nine months, effective Jan. 1. Alexander said he does not expect the bill to resolve the ethanol mandate issue. — Mark Mendiola, WLJ Correspondent