Friday, April 04, 2014
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Today's feature from the LDN Spring FARM OUTLOOK

Proposed ethanol reduction: a triple threat

By Derek Hurley

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[April 04, 2014]  Every year the federal government enacts a new series of laws and regulations that affect the population of the country. For 2014, farmers of the nation, Illinois and Logan County in particular, may be strongly affected by proposed new regulations on the manufacture of biodiesel and other similar fuels.

The U.S. Environmental Protection Agency has proposed legislation that would weaken the Renewable Fuel Standard. For Illinois farmers, the diminution would come in the form of a reduction in the amount of corn-based ethanol to be produced in 2014. This potential legislation has proven to be extremely controversial so far.

The EPA's renewable volume obligations set annual targets for the creation of biodiesel and other such renewable fuels. The proposed rule would limit corn-based ethanol at 13 billion gallons. These proposed volume obligations are a drastic reduction from current limits, which are presently set at 1.4 billion gallons higher, or 14.4 billion gallons.

Organizations such as the National Corn Growers Association have expressed great concerns with the passage of such legislation, arguing that it would weaken the economy for everyone, farmers or otherwise.

Martin Barbre, NCGA president, refers to the proposed change as "ill-advised" and says it "should be condemned by all consumers because it is damaging to our tenuous economy and shortsighted regarding the nation's energy future."

Barbre also said that agriculture has remained a positive note in an otherwise failing national economy.

Despite the relative good health of the agricultural industries, corn prices are currently falling below the costs of production. This legislation would damage things further.

Barbre also noted that the EPA proposal could "send the wrong signals to automakers who want more direction on where they should be spending millions of targeted investments on research and development."

According to data from the U.S. Energy Information Administration, U.S. oil imports have decreased by 15 percent. Organizations such as the NCGA attribute part of this decrease to the use of biofuels.

Going by the latest USDA projections, American farmers harvested a corn crop last year of a record 14 billion bushels. As a result of the massive supply, corn prices are falling, currently standing close to where they were when the Renewable Fuel Standard was enacted in 2007.

While the prices of buying corn have dropped, the cost of growing it has only increased over the past few years. In 2012, it cost $655 per acre to plant corn. According to the NCGA, should corn prices fall too far (using $3.50 a bushel as an example), farmers and the rural economy could lose more than $10 billion. Such a loss is expected by the NCGA should the new legislation pass.

"A shock of this magnitude to agriculture markets would send ripples throughout the entire economy," said Barbre. "Congress must carefully weigh the ramifications any changes to the RFS would have on agriculture and related industries. The U.S. economy and consumers can ill afford a downturn in this sector."

Some farmers are considering this to be a move by the government to further their support of oil companies.

Paul Taylor, a family farmer at Esmond and former president of the Illinois Corn Growers Association, commented: "Corn prices are already below the cost of production, and this announcement will cause corn prices to drop even further. Family farmers will have to borrow money to cover their family's living expenses as a result of this announcement, while Big Oil realizes massive profits yet again."

Taylor continued: "Ethanol is one dollar cheaper than gasoline, per the Chicago Mercantile Exchange. Anyone who contradicts that ethanol is costing consumers more money needs to check it out for themselves."

According to the ICGA, farmers supplied corn for a 13.8-billion-gallon ethanol industry last year after the worst drought in 80 years. The ICGA is confident that Illinois farmers can supply corn for a 14.4-billion-gallon ethanol industry this year, when we are seeing record yields. Reducing the amount used for biofuels could lead to a massive surplus of leftover corn.

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As asked by Kenny Hartman, ICGA vice president, of Waterloo: "In 2012, during the worst drought I've ever experienced, I raised 78 bushels of corn per acre. Yet, the ethanol plants around me continued to run and still produced enough ethanol to help our country meet the requirement in 2013: 13.8 billion gallons. ... This year I produced an average of 160 bushels of corn per acre, and my prices based on December futures are around $4, which is below my cost of production. Why now, when I have a record yield and the USDA predicts bushels and bushels of corn to spare, would we consider reducing the ethanol requirement, resulting in a massive surplus of corn and one less market for my crop?"

Taylor also said that the fortunate part in all of this discussion is that the legislation is only a proposal and not officially a law as of this time. Any legislative reforms to the Renewable Fuel Standard likely will not come until the end of the year.

Illinois is one of the top biodiesel producing states in the country. In other words, the EPA's approach to the matter is an attempt to reduce what they believe will be a surplus of biofuels created as a result of Illinois' growing corn crop.

"Illinois needs to show up with a good number of people voicing their opinion against the EPA plan," said Gary Hudson, current ICGA president. "We're hearing from D.C. that we really need to be seen on the EPA docket and heard with phone calls into our congressional offices. Numbers matter on this issue."

U.S. Rep. Bill Enyart, from the 12th Congressional District in Illinois, voiced his opinion Jan. 17 on the proposal to reduce the amount of renewable fuels, after receiving calls from those opposed to the proposed legislation.

"Corn prices are already falling due to a record harvest, and reducing the renewable fuel levels will cause prices to fall even further, hurting our southern Illinois farmers," said Enyart. "This proposal also sends the message that the U.S. is backing off its commitment to biofuels as a pivotal component of our national energy policy. I urged the EPA administrator to reconsider this proposal and recommit to the support of biofuels research and production."

Currently, Illinois has 14 ethanol plants online and is one of the top five producers of corn-based ethanol in the country. The state ranks second in corn production. In total figures, the Illinois ethanol industry equates to $76.5 million in revenue and over 4,000 jobs. Should the proposed legislation become law, those numbers will drop significantly.

The ICGA and the NCGA are urging people who feel strongly about the issue to get in contact with their representatives in government.


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