Reform RFS

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Susan Winsor, Corn & Soybean Digest

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A coalition of livestock and poultry groups is urging Congress to reform the Renewable Fuels Standard (RFS) after the release of an economic study on the impact of corn ethanol production on food prices and commodity price volatility.  A study by Thomas Elam of Farm Econ LLC says that federal ethanol policy has “increased and destabilized corn, soybean and wheat prices to the detriment of food and fuel producers and consumers.”  According to the study, because of the RFS:

• Ethanol, because its energy cost is higher than gasoline and because of its negative effect on fuel mileage, added about $14.5 billion, or 10 cents a gallon, to motorists’ fuel costs in 2011. 
• Increased ethanol production since 2007 has had no effect on gasoline production or oil imports, contrary to supporters’ claims. 
• Corn used for ethanol production rose 300% from 2005 to 2011, increasing from 1.6 billion bushels to 5 billion bushels. Ethanol production now uses more than 40% of the U.S. annual corn supply.
• Corn now represents about 80% of the cost of producing ethanol compared with 40-50% before implementation of the mandate. 
• Corn prices jumped to more than $6.00/bu. in 2011 from $2.00/bu. in 2005. 
• The rate of change for the Consumer Price Index for meats, poultry, fish and eggs increased by 79%, while it decreased by 41% for non-food items since the RFS was revised in 2007. 
• Ethanol production costs and ethanol prices have all but eliminated a market for ethanol blends higher than 10%. 
• The United States exported 1.2 billion gallons of ethanol in 2011.

The National Corn Growers Association said in a statement, “The RFS is revitalizing rural America, reducing our dependence on foreign fuel and reducing the cost of gasoline.  Making changes to the RFS now would only ensure that consumers suffer due to significantly higher fuel prices.  And while it is true that our corn crop is suffering, it’s still in the field.  In the meantime, the market is working. All corn users are responding to market signals. Ethanol production and exports are down. In addition, there is currently an ethanol surplus in the United States that will further reduce demand on the 2012 corn crop.”

The livestock and poultry coalition supports H.R. 3097, the “Renewable Fuels Standard Flexibility Act,” that would require a biannual review of ending corn stocks relative to their total use.  If the ratio falls below 10%, the RFS could be reduced by 10%. If it falls below 7.5%, the mandate could shrink by 15%; below 6%, it could be reduced by 25%; and if the ratio falls below 5% the ethanol mandate could be cut by 50%.  The study was funded by American Meat Institute, California Dairy Inc., Milk Producers Cooperative, National Cattlemen’s Beef Association, National Chicken Council, National Pork Producers Council and the National Turkey Federation.