Impact of U.S. ethanol waiver would arrive year later

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If the Obama administration relaxes the requirement to use corn-based ethanol in gasoline, the benefits would arrive a year later, with more corn available at lower cost for livestock feed and lower ethanol production, said a think tank on Thursday.

The governors of seven states in the U.S. South and Southwest have asked for a one-year waiver of the ethanol mandate on grounds it drives up feed costs and is bankrupting cattle, hog and poultry farmers. The corn harvest, now under way, is forecast to be smallest since 2004 because of drought.

The Environmental Protection Agency is not expected to decide before mid-November.

A waiver would provide little relief in the first year, said the University of Missouri think tank, a conclusion reached by other analysts. It said corn prices could drop by 3 percent in the following year, corn for livestock feed would be up by 2 percent and ethanol output would drop by 7 percent.

"Extra biofuel uses in one year typically can help to meet the next year's mandate," said the think tank, the Food and Agricultural Policy Research Institute. It said biofuel makers could apply ethanol production during 2013 toward meeting up to 20 percent of the higher ethanol mandate coming in 2014.

"If this practice is permitted, a waiver in 2012/13 could make it far easier to satisfy the (mandate) in 2013/14, when limits on E10 blending make mandate compliance difficult," said FAPRI, referring to the usual blend rate of 10 percent ethanol and 90 percent gasoline.

If the carryover is not allowed, "the direction of second-year effects are reversed," said the think tank.

The U.S. gasoline supply is nearly saturated at a 10 percent blend, making it difficult for retailers to comply with the ethanol mandate. The squeeze is expected to tighten as the mandate rises in coming years.

The so-called Renewable Fuels Standard guarantees ethanol a share of the gasoline marker for cars and light trucks. The mandate for this year is 13.2 billion gallons, rising to 13.8 billion gallons in 2013 and peaking at 15 billion gallons from 2015.

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Bobby Fontaine    
Lorton, Va  |  October, 06, 2012 at 08:34 AM

not true at all, they are looking at supply and demand corn values while ignoring corn futures speculating,, the fact the government has required such an expanded use of corn to make ethanol tells speculators that corn prices can do nothing but go up,, commodities markets are meant to be uncertain and volatile,, they are designed to be used as hedges against losses, not speculating on sure things,, the RFS changes the market by pointing it in a government required upward direction, which has resulted in a great deal of the price of corn being propped up by gamblers rather than actual futures traders who are actually involved in corn production and use, or other commodities markets,, the RFS changes the whole commodity curricula as farmers move to corn to support ethanol production because there’s more money in it,, that means they move away from other crops creating shortages in them and driving up those costs as well,, this makes commodities markets far more transparent than they were designed to be,, if the RFS was dropped, prices would drop like a rock as speculators exit futures markets,, ands this is not rocket science so you really have to question who comes up with these studies,, it seems that when it comes to doing research on anything related to commodity markets, reporting on speculators is off limits,, I just don’t see how the news media can expect anyone to believe they are provided the service they claim when the real stories get filtered this way

MA  |  October, 06, 2012 at 06:01 PM

Evidently no one in the powers that be recognizes that a bad crop year limits our ability to meet our planet's demand for grains. When will they abandon the ethanol mandate....after our grain yields are maxed out...that time will come....our planet will have another 2 billion people by mid century, jeopardizing our ability to provide for them.

October, 08, 2012 at 03:00 PM

Bobby, What you say may all be true but without the mandate to guarantee the demand for ethanol the natural level of the corn crop will be 9 billion bushel and $2. That may be great for the few remaining cattle feeders but I won't be growing corn and neither will a great many other farmers. So where does that argument get you, no corn either way.

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