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August 22, 2012

U.S. Ethanol and Livestock Producers Spar Over Corn Shortage

Platts Energy Week via Commodities Now 
The persistent drought across the U.S. that has sharply reduced this year's corn crop is not a sufficient reason to grant waivers from the country's Renewable Fuel Standard ( RFS), Bob Dinneen, the president and CEO of the Renewable Fuels Association said Sunday on all-energy news and talk show program Platts Energy Week. A combination market price signals and the use of the credits system created for the RFS will help balance the needs for both the ethanol and livestock industries, he added.
Dinneen, appearing alongside a representative from the livestock industry, Michael Formica, said that the rising cost of corn triggered by the drought had already sent its price signal to ethanol producers.
"Since June, the ethanol industry has reduced its production by about 15%," said Dinneen.
Nevertheless, with around 820,00 to 850,000 barrels per day (b/d) of ethanol in the domestic gasoline pool – and with the product's almost certain continued use whether or not waivers to RFS are granted by the U.S. Environmental Protection Agency ( EPA) – the highly political fight over corn's use for food or fuel is likely to continue.
Formica, an official with the National Pork Producers Council, said that while his group continues to support the RFS program, the waiver provision under the program is clear and his members need to waivers granted in order to continue to feed American consumers.
"Congress, when they adopted the Renewable Fuel Standard, put in some flexibility. One of the provisions under the RFS was the idea that there would be the ability for a waiver in the event of a severe economic or environmental catastrophe. I would contend that the worst drought in 60 years comes pretty close to a severe situation."
But Dinneen argued that the still ample availability under the program of Renewable Identification Numbers, or RINs, along with a sizable overhang of ethanol supplies and refiners’ ability to use the credits showed that waivers such as those requested last week from EPA by the governors of North Carolina and Arkansas were not needed.
A RIN credit is a serial number assigned to each gallon of renewable fuel that is in the marketplace. RIN credits are in essence a kind of tradable currency certifying compliance with the RFS program's mandates.
Dinneen acknowledged the "horrific drought," but said nevertheless that there was not the kind of corn supply shortage to justify RFS waivers.
Citing the 96 million acres of corn planted this year, he said that, "even with this terrible weather situation we're in, we're going to have the sixth largest corn crop in this country" in history. He also cited what he said would be the second largest global corn crop in history.
Formica said, however, that the ethanol industry's demand for what he claimed was nearly half of the corn crop put livestock farmers at a significant competitive disadvantage.
"We don't want a mandate that you have to produce corn for livestock," Formica said. "We just want an equal playing field."
And while Dinneen noted that ethanol producers also are producers of feed products for livestock farmers – known as distillers grain –- Formica countered that such products account for just a small portion of the feed needs for cattle farmers, only a temporary and limited supply source for pork producers, and are of no use to poultry farmers. What his members need, he said, was the actual corn.
Summarizing his group's view of the distillers grain that ethanol producers provide, Formica said: "This is like going to the fair and ordering a hot dog, and you only get the bun."
Ends --
Courtesy Platts Energy Week via  Commodites Now (EconMatters author archive here

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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