Crazy Timing For Ethanol Cutback

Inside Dakota Ag

Gas prices fall below $3 gallon and corn prices fall below $4 per bushel -- and then we cut back the Renewable Fuel Standard for ethanol?

Published on: November 17, 2013

It’s ironic that EPA announced its proposal to cut the Renewable Fuel Standard precisely the same week the retail price gas fell below $3 per gallon and just as farmers were wrapping up a harvest that’s so big that there will be enough corn for food, feed and fuel with plenty to spare -- and corn will cost half of what it did last year.

Isn’t this what consumers wanted? Cheaper fuel? Cheaper feed? Cheaper food?

Some blame Big Oil for the proposed cutback in the Renewable Fuel Standard. But I don’t think "blame" is the right word. We knew most of the oil companies would oppose ethanol. We knew oil companies would pull out all the stops to get what they wanted. It’s how the game is played and they play it well.

However, I do blame some livestock, wildlife and conservation groups. It seems to me they tipped the scale against ethanol with their arguments about ethanol’s impact on food prices and conversion of grassland to cropland.

Blaming ethanol for food prices increases wasn't entirely fair because much of the increase was due to higher transportation, labor and packaging costs. After all, now that corn is under $4 bushel has the price of beef in the supermarket come down?

Some wildlife and conservation groups wrongly claimed that all the extra acres of corn in the U.S. came from conversion of grassland. A lot of the additional acres came from wheat and other crops.

Ethanol isn't blameless, either. They shouldn't have relied so long on a government mandate to sell ethanol. They should have come up with a market solution is they wanted to be viable long term, even if that meant selling plants to oil companies.

I’m not sure what the impact cutting back the RFS mandate will have. Ethanol certainly isn’t going to go away. The push for more corn to make more ethanol might slow -- but it would have anyway as cellulosic ethanol came on line.

I doubt if cropland acres will be immediately switched back to grassland and landowners will think that $40 per acre CRP payments are a good deal. World demand for food -- especially meat -- will likely continue to grow and so will the demand for corn and soybeans to feed to animals. As many ag economists say, we’re in a situation now where one hiccup in crop production anywhere in the world will cause grain prices to spike. $10 corn and $20 beans anyone?  That possibility means that farmers won’t being giving up corn and soybean acres anytime soon.

Comments:
Add Comment
  1. Helmut says:

    The problem is not ethanol, it is GOVERNMENT GAS! Corn was $2/bushel before Congress through the RFS & the EPA mandated per gallon subsidies-$ , per gallon RIN credits-$, and % blending quotas for corn ethanol. No wonder corn went to $7.50/bushel! Any blame goes to big government for allowing special interest groups to line their pockets by changing the law of the land to where food HAS TO BE burned for fuel. The irony is that even in the face of environmental and economic failure the RFS is still the law-still food to fuel. By the grace of Congress the RFS is living too late. It is a sick but its ingrate …