Short corn crop prompts give-and-take on ethanol

The Beatrice 77 sale barn is scheduling extra sales to accommodate cattle producers downsizing their herds.
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August 24, 2012 - 9:11am

Livestock producers are watching their feed costs rise with corn prices, and they're taking their concerns to Washington, D.C. The Environmental Protection Agency is under pressure from livestock groups and lawmakers to curb those prices by suspending the federal ethanol mandate.


Photo by Grant Gerlock, NET News

The Beatrice 77 sale barn is scheduling extra sales over the summer to accommodate cattle producers downsizing their herds.


Photo by Grant Gerlock, NET News

Cattle, pork, dairy, egg, and poultry groups are asking the federal government for relief from record high corn prices over eight dollars per bushel.


Photo by Grant Gerlock, NET News

Many of the cattle at the auction were from dairies thinning older or less productive cows from their herds.


 

The EPA is reviewing the idea and taking public comments, but it's not entirely clear whether suspending the Renewable Fuels Standard would actually work the way livestock producers hope.

This month, the USDA reduced its estimate for the size of the U.S. corn crop down to just under 11 billion bushels. Ten years ago, 11 billion bushels of corn would have been a record. This year, it's a disaster.

"Even though an 11 billion bushel corn crop is high by historical standards, it sure doesn't come close to meeting (the) need of 13 billion bushels that's out there," said Bruce Babcock, an agricultural economist at Iowa State University. "So clearly something has to give."

Livestock groups like the National Cattlemen's Beef Association and National Pork Producers Council have suggested if something has to give, it should be the ethanol industry.

"If you're a livestock producer, you want as low of feed costs as you can get," Babcock said. "The problem is the only tool the government has to lower feed costs is a waiver."

Livestock supporters argue a waiver of the Renewable Fuel Standard (RFS) would bring down corn prices.

The RFS requires oil refiners mix a certain amount of ethanol with gasoline each year - 13.2 billion gallons in 2012. The Environmental Protection Agency is considering a request from the governors of Arkansas and North Carolina to temporarily suspend that requirement.

According to ag economists, a waiver would at least make a small difference over the next year. Babcock said it would save around 58 cents per bushel. A group from Purdue University estimated anywhere from 44 cents to $1.34.

At the Beatrice 77 livestock sale barn near Beatrice, Neb., co-manager Dennis Henrichs has been noticing the impact of the drought and corn prices. Auctions are usually held every other week in August. This year, however, cattle producers are downsizing their herds to save money, and Henrichs has had a sale every week.

"(The sales) are going to be three to four times larger than last August, and again it goes back to drought," Henrichs said.

Inside the sale barn, wooden bleachers lead down to a white corral. A small crowd watches from the back as a few cattle enter the ring and the auctioneer starts his chant.

Deven Scherkinau left his calves at home, but the last of his 90 cows came in to be sold.


Photo by Grant Gerlock, NET News

A cow dog guards the aisle at the Beatrice 77 sale barn.


Photo by Grant Gerlock, NET News

Deven Schernikau from Beaver Crossing, Neb. brought the last of his cows to be sold in Beatrice.


Photo by Grant Gerlock, NET News

U.S. Agriculture Secretary Tom Vilsack defends the Renewable Fuel Standard in a speech before the American Coalition for Ethanol in Omaha on Aug. 10.


 

"Our pasture's grazed down to, I mean, there's just nothing out there," said Schernikau, who grows seed corn and raises cattle near Beaver Crossing, Neb.

The price Scherkinau pays for the corn syrup he mixes into cattle feed has more than doubled.

"We weaned our calves and sold our cows," Scherkinau said. "What little grass we do have left, we're saving it for them to munch on for a couple months."

Schernikau said if it rains and prices come down, maybe he can rebuild his herd.

That's the appeal being made by livestock groups. If a waiver would bring down corn prices, maybe more cattle, poultry, dairy and pork producers can hold on until the drought's over.

U.S. Agriculture Secretary Tom Vilsack is standing by the RFS. Vilsack told the American Coalition for Ethanol at a meeting in Omaha demand for corn can adjust to the supply.

"When ethanol production is going to use 500 million bushels (of corn) less than they anticipated two months ago, that's obviously the market responding," Vilsack said. "If livestock is going to use less, if exports are going to be less, that seems to me like the market is responding."

Vilsack also said there's flexibility in the design of the RFS. Ethanol companies can scale back and use less corn. Oil companies have enough credits from using excess ethanol in past years to make up the difference.

But flexibility may only go so far. It's possible demand for ethanol would be the same with or without a government mandate. If that's true, ag economist Babcock said a waiver would have no impact on corn prices, "because oil companies have configured refineries over the last 2 to 4 years to produce lower octane gas that they blend with 10 percent ethanol to bring the octane up to regular gasoline, 87 octane in most of US."

Refining oil to a lower octane and finishing with ethanol saves money. Changing that would take months.

"The last thing corn growers want is for (oil refiners) to divest themselves of the ability to use ethanol," Babcock said. "So it's really going to be interesting to see, if a waiver is granted, the extent to which they back off ethanol. No one except oil companies know that."

The EPA has until November 13th to judge whether keeping the RFS in place would cause severe economic harm. By then the corn harvest will be over, and it will be more clear what kind of disaster the drought has caused and how flexible the system can be.

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