Ethanol industry responds to RFS waiver petition

As expected, a coalition of meat and poultry producer organizations filed a 16-page petition with the U.S. EPA for a waiver or partial waiver of the renewable fuel standard (RFS), and requested an expedited consideration. “The extraordinary and disastrous circumstances created for livestock and poultry producers by the ongoing drought in the heart of our grain growing regions requires that all relevant measures of relief be explored and taken where possible,” the petition says. With the drought taking an enormous toll on the nation’s corn crop, the petition says the RFS volumes of 15.2 billion gallon RFS for this year and 16.55 billion gallon in 2013 “will require the renewable fuels industry to utilize a major portion of the drought-limited available corn supply.”

In all, 19 organizations, including pork, chicken, cattlemen, turkey, sheep, dairy, meat and feed associations, signed on to the petition which details the growth in the ethanol industry and the impact of the new demand upon corn prices. The petition lays out the case for harm in the face of drought-reduced supplies. “Some private forecasters predict a total crop of 11.8 billion bushels, the smallest crop since 2006-2007,” the petition says. “In some areas, private forecasters are predicting the smallest crop since at least 1993. The applicable volume of renewable fuel in 2012 will require approximately 4.8 billion bushels of corn to produce, or 2.0 billion bushels more than in 2008. These circumstances are causing and will continue to cause severe economic harm to livestock, poultry and other agricultural industries in various regions of the United States.”

The ethanol industry was quick to respond to the waiver:

“Higher corn process facing livestock and poultry users is a result of Mother Nature, not ethanol,” said Tom Buis, CEO of Growth Energy, said in a prepared statement. “To try and blame the ethanol industry is disingenuous and absurd. We have never run out of corn and this year will be no different.” He added that the root of the campaign is an attempt to increase the bottom line of the livestock and poultry industry at the expense of grain farmers. “After years of the federal government subsidizing the production of corn, this coalition believes they are still entitled to subsidized corn prices,” Buis said.

ACE Executive Vice President Brian Jennings said the petition for a waiver is misguided and on questionable legal ground. “While we understand the meat industry feels entitled to cheap corn, it is unclear their petition to waive the RFS is even permissible,” he said in a written statement. “Under the Clean Air Act, only states and obligated parties (i.e. oil companies) can petition EPA to waive the RFS.”

From the Renewable Fuels Association, President and CEO Bob Dinneen pointed out that a waiver would not change much. “Given the flexibilities inherent to the RFS, and the fact that waiving the program would not result in any meaningful impacts on corn prices, we fully expect Administrator Jackson to deny any waiver request,” said Bob Dinneen, RFA president and CEO. He cited a recent analysis by Bruce Babcock at Iowa State University that simulated the corn price impacts of a 100 percent waiver of the RFS during the upcoming 2012-’13 corn marketing year, finding that a waiver might result in only a 4.6 percent reduction in corn prices. Furthermore, he argued that with the ethanol industry’s high-protein feed coproduct, “limiting ethanol production will only further complicate drought related feed issues and costs.”

All three advocates for the ethanol industry pointed to the mechanisms built into the RFS to deal with market fluctuations. The RFS allows carrying over excess renewable identification numbers (RINS), of which there are between 2.5 billion and 3 billion available—the equivalent of nearly 20 percent of this year’s RFS renewable fuel requirement. Plus, obligated parties can carry a 10 percent deficit into the next year, which would equal another 1.32 billion gallons of ethanol.

“The marketplace is the most efficient mechanism to ration demand, not the government, and that is already happening,” Dinneen said, pointing out that the ethanol industry has already begun to respond to sharply higher corn prices by significantly reducing production.

Buis also pointed out that domestic feed demand will decline as cattle herds are liquidated due to poor pastures and hay crops, “Once again, it is the drought that is driving commodity prices,” he said.