RFS Argument Goes On and On and On

Beefs and Beliefs

Requests for RFS waiver won't make much difference in feed prices in this drought year.

Published on: September 6, 2012

The longer I live and the more I witness how severe are the market distortions caused by government interventions in the marketplace, the more I resist all such behavior.

So it is with the Renewable Fuel Standards mandate and the battle over numerous requests for EPA to waive that mandate in this short-crop year.

My good friend and regular columnist for Beef Producer magazine, John Otte, a few days back penned an article for Farm Futures magazine that suggested a majority of livestock producers are against waiving that mandate.

I read the article and the research and promptly wrote him a note arguing his premise.

Here's what I told him:

"The thing you’re overlooking is that all the 'livestock producers' you questioned were almost undeniably farmers of grain first and livestock producers second. If you went to strictly livestock producers, meaning those with only livestock or who farm incidentally as a small part of their livestock operations, then I am positive you would find nearly all are fully against the RFS mandate regardless of year or drought.

"This is the defining issue for who favors the mandate and who does not. Those who see themselves gaining financially from it are in favor. Those who see it costing them money are against."

Otte, being the wise man he is and always willing to consider other points of view, wrote back in his usual personal sanscrit that I was very likely right.

Tuesday afternoon I had a nice visit with Kristina Butts, executive director of legislative affairs at NCBA, and she agreed that my distinction between farmers and livestock producers matches her experience as well. NCBA has long been against the now-dead ethanol tax credit and the RFS mandate. Generally, NCBA lobbies against things it sees as market distorting, especially if they appear to get in the pocketbooks of beef producers.

And more to my point: the National Corn Growers are naturally requesting an extension on the comment period about the RFS waiver. They want nothing to change with RFS because they see it as valuable to their pocketbooks.

Therein lies my argument.

By now, I'm sure you know I am against the RFS in all circumstances. It is a subsidy and a market distortion. Further, it is not really a replacement for petroleum-based gasoline as is so often claimed. If you study how it is made and used, it is really a fuel "supplement," as former Texas congressman Charles Stenholm has begun to call it.

Sadly, whether the RFS mandate is waived this year or not likely won't make much difference when grain supplies are in such short supply.

Dan Basse of AgResource Company last week said he is predicting a 10-billion-bushel crop with 4.7 to 5 billion bushels going to ethanol. Even if the mandate is waived Basse says high prices for motor fuel plus demand for ethanol as an fuel oxygenate will keep usage at 4.3 to 4.6 billion bushels. Further, Basse says, the capacity of U.S. refineries is well below even our current declining fuel usage and so ethanol helps fill that gap.

In addition, he says high worldwide grain demand in concert with very short supply are supporting high grain prices. That doesn't look like it will change in this crop year, Basse says.

Basse and NCBA's Kristina Butts note the shine is worn off ethanol in Congress but the EPA is really resisting any changes in RFS.

The bottom line is you shouldn't expect much relief from high corn prices in the next three quarters regardless of what happens with the RFS mandate.

Instead, look for bargains such as high-aflatoxin corn, Basse says. Lock in workable grain prices if you can get them. Buy corn from a reliable supplier you believe will have it when you need it.