Corn Ethanol: Love It, Forget It, Vilify It

Prairie Gleanings

Legislators seem to have schizophrenia when it comes to corn-based ethanol

Published on: October 17, 2011

It seems the volume of ethanol detractors’ voices are directly tied to corn prices. The markets go up, the critics get louder.

One of the more recent thrashings has come with the introduction of H.R. 3097 from Rep. Bob Goodlatte (R-VA) and Jim Costa (D-CA). The bill seeks to adjust the corn-based ethanol mandate in relation to the corn ending-stock-to-use ratio. Therefore, as we have less leftover corn, the mandate goes down.

On paper it looks like this:

 

Stocks:Use

RFS Adjustment

Above 10%

None

10%-7.5%

-10%

7.49%-6%

-15%

5.99%-5%

-25%

less than 5%

-50%

The thinking is it will help reduce the price of corn for livestock producers as stocks get tight. I think it’s a bit too simplistic. It’s not directly tied to price. If it were, it would pose even more problems as meat prices fluctuate.

Perhaps most disturbing is it’s more meddling in an industry that many feel are ready to stand on its own accord. In just six years, we’ve gone from trying to build an industry, to cutting it loose of subsidies, to trying to penalize it. Imagine running an ethanol plant in this climate. You’d have no idea if policy makers will love or hate you tomorrow.

Of course, the other part of this story deals with distillers grains. Where do distillers grains fit into corn’s demand structure? To date, it’s been lumped it in with ethanol production. However, as the National Corn Growers Association is trying to point out, distillers grains should be put into the livestock portion of corn demand.

The difference is about 20%. With distillers grains lumped in with livestock, you can say about 40% of the corn crop goes to livestock feed. That leaves just over 25% for ethanol production. In the past, most have flip flopped those two numbers.

It’s a tough call. I can see NCGA’s point. However, distillers grains aren’t as versatile as corn. Maybe they should have their own slice of the demand pie graph. What do you think?