Surging US Corn Prices Spark Ethanol Debate

U.S. corn harvest is set for big decline, boosting prices

on August 07 2012 1:15 PM
Chuck Grassley
U.S. Senator Charles Grassley, R-Iowa, listens to a question during the 2009 Reuters Washington Summit in Washington, October 19, 2009. Reuters/Jonathan Ernst

A 60 percent surge since June in the U.S. corn price has reignited the on-again-off-again debate over using corn to produce ethyl alcohol, also known as ethanol, as a motor fuel additive.

Peter Brabeck-Letmathe, chairman of Switzerland's giant Nestlé S.A. (ETR: NESR) food company, has taken his stance on ethanol: making the fuel from corn makes food items more expensive and making it from corn or sugarcane uses a lot of water.

"We are now in a new world with a completely different level of food prices because of the direct link with fuel," he told the BBC World Service last month.

So it should be no surprise that the anti-ethanol contingent, of which Brabeck-Letmathe is a part, is up in arms again as America's corn harvest is forecast to be down 14.5 percent this year to 11.8 billion bushels.

According to Colin A. Carter, professor of agricultural and resource economics at the University of California-Davis, and Henry Miller, a doctor and fellow in scientific philosophy and public policy at the Hoover Institution, nearly half of America's corn goes to livestock in the United States or is exported, mostly for livestock feed.

This year, an estimated 4.3 billion bushels of corn will go to ethanol production under a federal mandate to blend 36 billion gallons of biofuel into gasoline by 2022, of which 15 billion gallons would come from corn. In 2001, Cornell University researchers estimated that a gallon of ethanol requires about 22 pounds of corn.

Based on the estimate of 56 pounds of corn per bushel, 15 billion gallons of corn-based ethanol in 2022 would require almost six billion bushels of corn, or more than half of this year's estimated national corn crop. The U.S. Department of Agriculture currently estimates that 37 percent of America's corn goes to ethanol production.

"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," Carter and Miller wrote recently in an op-ed in the New York Times.

Meat producers concur.

They are demanding the Environmental Protection Agency (EPA) waive the current Renewable Fuel Standard that they estimate would require 9.6 billion bushels of corn to help produce about 32 billion gallons of biofuel, or 15.2 billion this year and 16.5 billion in 2013.

"We ask that you act promptly in this matter to both address current harm and to prevent future harm to American livestock and poultry producers," said a letter to EPA Administrator Lisa Jackson in a letter from a coalition of 19 meat and dairy groups.

With all the critics out there, ethanol producers have banded together to fight the backlash from food company CEOs, meat and dairy producers, food security advocates and the petroleum lobby.

"There's a lot of hype and hyperbole going on by the industrial livestock producers and the petroleum refiners," Brent Erickson, executive vice president with the Biotechnology Industry Organization, told The Hill on Friday. "Our goal is to make sure that our voice is heard and that the facts are out."

A new organization called the Biofuels Producers Coordinating Council will join the Renewable Fuels Association in advocating for the biofuel movement and the Renewable Fuel Standard.

Alternative fuel producers have their congressional backers, like Sen. Charles Grassley (R-Iowa), who says ethanol opponents are exaggerating when they say more corn is used in ethanol production than to feed livestock, because they don't factor in dried distillers' grains, the corn that is re-introduced into the livestock-feed market after the distillation process.

"When the distillers' grains are factored in, 43 percent of the corn supply is available for animal feed. Only 28 percent is used for ethanol," Grassley said on the Senate floor last week.

"The drought is enormous in both scale and severity. But we won't know the true impact until September, when the harvest begins," he added. "I would suggest that those claiming the sky is falling withhold their call for waiving or repealing the Renewable Fuels Standard. It's a premature action that will not produce the desired result."

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