Biofuel Producers Feel Heat Of Midwest Drought

The torrid Midwest summer is decimating cornfields, pinching the crop forecast and putting upward pressure on prices – and now the ethanol industry is beginning to feel the heat: Calls are coming for a suspension of the nation’s renewable fuel standard, which siphons off a hefty portion of corn and turns it into fuel.

Under U.S. law, as administered by the Environmental Protection Agency, 13.2 billion gallons of corn ethanol must be blended with gasoline this year (rising to 13.8 billion gallons in 2013). That translates to about 4.7 billion bushels from a corn crop that seems to be shrinking by the week.

food vs. fuel corn crop renewable fuel standard

image via Shutterstock

In early July, the U.S. Department of Agriculture trimmed the 2012 corn forecast 12 percent to 12.97 billion bushels. The department is scheduled to release a new forecast this coming Friday, and it will surely be much lower; industry watcher Farm Futures said late last week that based on its survey, it expected the crop to come in at 9.86 billion bushels.

That means ethanol would consume nearly half of the entire corn crop.

Even before this year’s drought devastation there was growing concern about the bite that biofuels were taking out of food production, especially in what climatologists see as an era of increased weather volatility.

Earlier this year, researchers from Purdue and Stanford universities looked at how future global warming could push up corn prices. The researchers found that the extra volatility that climate change could bring to the corn market would be further exacerbated by the biofuel mandates, which they claim could help to increase price volatility by about 50 percent.

Against this backdrop, the drought is sparking a chorus of cries for the Obama administration to relax the RFS and make more corn available for the food production chain.

Dairy farmers, cattle ranchers, chicken and pig growers – a vast coalition of ag interest who rely on corn for feed – have written to the EPA seeking a waiver on the RFS [PDF], arguing that without such relief many in their ranks could go out of business, taking jobs down with them.

In a New York Times op-ed last week, Colin A. Carter of UC Davis and Henry I. Miller of the Hoover Institution agreed that without at least a partial waiver of the RFS, the impact will be harsh, and not just in the United States.

“The price of corn is a critical variable in the world food equation, and food markets are on edge because American corn supplies are plummeting,” the pair wrote. “The combination of the drought and American ethanol policy will lead in many parts of the world to widespread inflation, more hunger, less food security, slower economic growth and political instability, especially in poor countries.”

In Congress, 156 House members – 127 Republicans and 29 Democrats – signed on to a letter [PDF] calling for “a fair and meaningful adjustment” to the RFS.

Sports columnist, newspaper desk guy, website managing editor, wine-industry PR specialist, freelance writer—Pete Danko’s career in media has covered a lot of terrain. The constant along the way has been a fierce dedication to knowing the story and getting it right. Danko's work has appeared in Wired, The New York Times, San Francisco Chronicle and elsewhere.

    • Bobby Fontaine

       The article at the link below is a must read before any serious
      discussion on ethanol. On petition to EPA to end ethanol mandate by meat
      producers, it does make sense that ending ethanol production will not
      result in a significant lowering of corn prices because excess corn has
      already been turned into ethanol, which of course is what the industry
      is saying, that there should be no need for concern because they have
      800 millions gallons of it stored away,, normally that 800 million
      gallons of ethanol would be our corn stores for when we have a bad
      drought,, so instead of having a large amount of grain stores after a
      good year to help get us through hard times, we have a large amount of
      ethanol instead,, 800 million gallons, that’s a heck of a lot of
      ethanol, it’s as if they saw this drought coming and thought “hmm, a bad
      drought might mean starving people around the world and high food prices
      here at home,, that could spell trouble for the ethanol industry,
      perhaps we should buy the worlds corn supplies now and turn it into
      ethanol, then store it, I mean we can always turn corn into ethanol but
      they can’t turn ethanol back into food ”

      • Pete

        Bobby, It’s true that there are 815 million gallons of ethanol in storage right now. What I’ve understood is that much of that stockpile is attributable to record production in late 2011, driven by the end of the 45-cents/gallon tax credit. Apparently, producers have since reduced output from 963,000 barrels a day as of the end of last year to just over 800,000 b/d now. The industry says that with that adjustment, unused credits, and people generally driving less, refiners’ use obligation might be less than 10 billion gallons this year, which would take a lot of pressure off corn prices. That is the argument made by Babcock in the Iowa State study I refer to toward the end of this piece.
        Thank you for your comment.
        Pete Danko

    • Kwicken

      this might explain the jump in the price of gasoline $.13 the past week and it is still rising. EPA needs to suspend the use of ethanol in gas otherwise no corn left for food