Continuing drought conditions have livestock and corn producers facing extreme marketing challenges, one of them being a way to find consensus regarding rising prices and growing competition for corn.
Much of the controversy is centered on the Renewable Fuels Standard, a government mandate on ethanol production. Livestock producers say the drought is causing short corn supply and the RFS is driving their feed prices up. Corn growers say it's too early to tell if corn yields will satisfy both the ethanol market and the livestock sector—but who is right?
A new report, "Potential Impacts of a Partial Waiver of the Ethanol Blending Rules," by Purdue University, examined the issue and found that even if the Environmental Protection Agency were to institute a partial waiver of the RFS, corn prices may not necessarily ease.
Many factors surrounding the issue were examined when preparing the report, including ethanol stocks, drought conditions, consumer impacts, market reaction and unintended consequences of an RFS waiver.
Paper authors Wally Tyner, Farzad Taheripour and Christopher Hurt, all professors at Purdue, say corn price has gone up nearly 60% since June 15, causing price shifts for key food staples such as milk and eggs.
During a webinar Thursday, sponsored by Farm Foundation, Tyner said conditions would need to be just right for a waiver to work in favor of the livestock sector. The key will be flexibility with ethanol producers through the use of RINs, or renewable fuel identification numbers, also referred to as "credits."
The RINs come into play because refiners have built up credits over the last few years. This means that there are "leftovers" from previous years to use toward 2013 blending requirements.
Hurt says RINs are important because they could be turned in, rather than producing ethanol. He estimated that there is about 2.6 billion gallons of ethanol that could displace ethanol scheduled for future production.
"If refiners and blenders do not have or choose not to use ethanol blending flexibility, a waiver has very limited impact. To the extent that there is flexibility, even the use of prior RINS or a waiver, could reduce the corn price," Tyner said.
Tyner estimated that the price of corn could be reduced by 67 cents a bushel if the credits are used—and that is without an EPA waiver.