The big picture

May 3, 2013

Corn is back in the news and it looks like the livestock industry has re-armed and is going after the Environmental Protection Agency (EPA) again over the Renewable Fuel Standards (RFS). Bob Goodlatte, R-VA, proposed legislation a few weeks ago that would reform the law. Perhaps EPA will pay attention this time. The last time the livestock industry went after the RFS asking for a waiver, EPA just gave them lip service, barely giving the issue any attention.


According to Goodlatte, “The RFS debate is no longer a debate about fuel or food. It is also about jobs, small business, economic growth and freedom. The federal government’s creation of an artificial market for the ethanol industry has quite frankly triggered a domino effect that is hurting American consumers, energy producers, livestock producers, food manufactures, and retailers. Extreme drought last summer and record corn prices made it clear that the RFS is not working.”

The ethanol business has changed and now it’s assumed by many that the growth for transportation fuels is starting to decline and there is no reason to perpetuate the annual increase in ethanol production. Even the blenders say there’s not enough gasoline around to put all this ethanol into. We are currently over-producing ethanol, so what’s the point of expanding the mandate?

Ethanol proponents want EPA to take the blending level up to 15 percent from 10 percent of gasoline volume. Of course, this would increase demand for ethanol and the industry can go on their merry way. Ethanol producers are getting concerned about price spikes for renewable identification numbers (RIN), which will add to their production costs. RIN’s are required by EPA to deliver ethanol through the marketing chain.

There is certainly a split on this issue, but there seems to be a strong support developing that may be able to influence congress into passing the RFS Elimination Act and the RFS Reform Act.

According to James Taylor from the Heartland Institute, “Ethanol mandates provide no appreciable economic benefits. For vehicle owners, ethanol raises fuel costs and delivers lower mileage. For food consumers, ethanol raises food prices by unnecessarily diverting much of the nation’s food supply to fuel. For ranchers, ethanol raises livestock feed costs. For environmentalists, ethanol production uses exorbitant amounts of water, encourages the development of marginal crop lands that would otherwise be left in a more natural state, and provides no net emissions benefits.”

“Outside of a narrow band of powerful special interests groups, there is almost a universal agreement that ethanol subsidies and benefits do more harm than good,” Taylor added.

The House committee on Energy and Commerce produced a white paper that showed they understood the issue but needed more information. Cellulosic biofuels were to have reduced the demand for corn-based ethanol by now but there has not been any significant production of that type of biofuel. There were only 5 million gallons produced so far in 2013.

The livestock industry pointed out just how poor a fuel ethanol is and that the artificial markets have priced it beyond reason. Ethanol has about 67 percent the energy content of gasoline. At current gasoline prices, ethanol has a market value of about $1.80 a gallon. The national average wholesale price for ethanol is currently $2.70. At $1.80, ethanol producers can afford to pay $3.80 per bushel of corn. At $2.70, the affordable corn price is $6.55 per bushel. This is a simple example of how far from true market value the RFS has taken corn and shows what has been driving daily corn prices since 2008.

As far as jobs are concerned, the industry says that a million tons of corn used to produce meat and poultry supports over 3,600 direct jobs while the same volume of corn used by the ethanol sector supports only 145 jobs. This shows that the meat and poultry portion of food production supports a much larger labor force than the entire fuel industry claiming that RFS has diverted jobs away from the food industry.

It’s good to see that finally some in Congress are seeing the big picture with the RFS and that it has a far reaching effect in the entire economy, not just livestock and fuel. It’s about healing this economy and creating jobs, and it’s about market freedom. — PETE CROW