Debate over ethanol mandate looks beyond short term
The drought that hammered the Midwest this year has revived the debate over using corn for fuel instead of food. But the stakes for ethanol and livestock producers go beyond the current dry spell.
Livestock producers want to press pause on the federal law -- called the renewable fuel standard -- that is gradually increasing the amount of ethanol that must be blended into the nation’s supply of gasoline. The thinking is that a temporary waiver in the standard would take the pressure off corn prices, and lower the cost of animal feed. But some experts say it wouldn't work out that way.
Josh Alexander, who runs the day-to-day operations on his family’s 2,000-acre farm and 5,000-head cattle feedlot near Pilger, Neb., says that livestock producers need the price relief.
Normally, the Alexander family grows most of the corn they need in their own fields, but not during this year while dealing with the worst drought in decades. To make up the difference, they had to buy corn and hay at a drought-year premium. Overall, the cost of their cattle feed doubled, and in the current market they would lose money on the animals in the lot.
“Unfortunately,” Alexander said. “But we’re hopefully going to get a rebound in the market.”
In November, the Environmental Protection Agency will decide whether to suspend the ethanol mandate in order to bring down high corn prices. The trouble is, some ag economists, such as Richard Perrin at the University of Nebraska Lincoln, do not think that would actually work because oil companies now depend on ethanol as a cheap octane boost for gasoline. Changing that would take several months at least.
“No one that I know of thinks by February or March corn would be 50 cents or more cheaper than it would be without a waiver,” Perrin said. “Most expect it won’t have any appreciable impact until many months from now and then when it does, the impact would probably be quite small.”
Perrin said a waiver might ultimately save livestock producers a few cents on the price of corn, but not a couple of dollars, as they might have hoped.
“If that is true let’s waive it and let the ethanol and protein industry compete for a bushel of corn on a level playing field,” said J.D. Alexander, who runs the feedlot near Pilger with his son, Josh. He also is president of the National Cattlemen’s Beef Association.
If economists agree that suspending the ethanol mandate would make little difference, J.D. Alexander contends, the EPA should consider eliminating the mandate altogether.
“(The U.S.) cattle herd is at an all-time low in 50 years,” Alexander said. “We’re more than willing to compete, but we don’t think it’s fair for the government to mandate one commodity over another when they have to utilize that much corn.”
While suspending the ethanol mandate temporarily would have a minor impact, Perrin said, taking it away entirely would be more serious.
“The reason is because today oil is selling for $89 a barrel,” Perrin said. “That’s why we see a lot of ethanol plants shutting down or reducing their throughput right now.”
Fifty miles northwest of the Alexander feedlot at the Husker Ag ethanol plant near Plainview, Neb., general manager Seth Harder does not think food and fuel are in conflict. Husker Ag opened in 2003 and makes 76 million gallons of ethanol per year, although the drought has caused cutbacks.
To Harder, cattle feeders are customers, not corn competitors.
“We are concerned for their livelihoods as well because they are a partner to our business,” Harder said. “They’re a vital piece of it.”
Many livestock groups lobby against the Renewable Fuel Standard, but local cattle feeders purchase around 450,000 tons of distillers grain from Husker Ag each year. Distillers grain is corn fiber and protein left over after ethanol production. It is high in protein and can replace regular corn in cattle feed.
“We need the starch portion, and really, the beef need the protein portion,” Harder said. “So it’s kind of a perfect relationship there if you think about it.”
J.D. Alexander uses distillers grain at his own feedlot but feels the arrangement is less than perfect as long as corn prices remain high. Alexander said grocery shoppers will be the next people to notice.
“Cattle producers will continue to raise cattle,” Alexander said. “If we’re going to have a higher price of corn to pay to feed our cattle, poultry, pork and so on, eventually that high price is going to get to the consumer’s table. There’s no way around it.”
The EPA is set to decide by Nov. 13 whether to put the ethanol mandate on hold. That seems unlikely because ethanol has strong support from the Obama administration.
Even if the mandate goes on a brief hiatus, the policy is set to continue through the year 2022 and grow along the way, which means this argument is far from over.
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