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DAVID KRUSE

By Staff | Oct 7, 2011

The National Cattleman’s Association was careful when developing its new policy guidelines not to use the word, “ethanol,” while they paid the help to undermine the Renewable Fuels Standards in Washington.

Economist Steve Meyer testified to the sub-committee on agriculture, livestock, dairy and poultry on behalf of the NCBA. He essentially insinuated that ethanol was responsible for the demise of thousands of small hog and cattle operations from 2007 to 2010 due to government ethanol subsidies.

The integration and concentration of the livestock industries occurred due to issues unrelated to ethanol, but why point out such facts when that is not the objective? Their objective is to reduce ethanol production mandates in the RFS to increase the availability and lower the price of corn to livestock producers.

Meyer expressed concern over feed supplies in a drought year. It’s ironic that the NCBA never testified against corn subsidies in previous farm bills as those subsidies indirectly depressed the price of corn by artificially sustaining over-production. This has always been about the price of corn.

Meyer testified that the livestock industry has policy that government should not favor winners or losers but the truth is that they had no problem when government policy benefited them making them the winner. Those subsidies were plenty OK to livestock producers.

Ethanol policy is energy policy. The federal government decided that the USA was the loser by importing foreign oil and therefore, ethanol made the USA a winner.

Meyer and NCBA ignore that fact. Higher corn prices have had minimal impact on U.S. food costs. The reduction in gas prices at the pump from ethanol production is a significant multiple of the impact the consumer has seen in higher food costs. The U.S. consumer has been a big winner from ethanol. The country has benefited from ethanol.

U.S. livestock producers have lost their subsidized low-cost corn, so consider themselves losers, but could care less that the country and consumers benefit from ethanol.

The NCBA has become a regional representative of the cattle industry.

Economist Steve Meyer gave testimony on behalf of the NCBA saying, “I urge your committee and the House agriculture committee, as a whole, to quickly adopt a plan to provide an automatic waiver of the RFS in the circumstance of a pending crop failure in major corn growing areas and relatively low oil and gasoline prices.

I would envision this “trigger” to be a function primarily of supply indicators such as grain stocks, acreages and crop conditions which, when met, would allow the secretary of agriculture to take action regarding the RFS.

Ethanol opponents have eliminated the ethanol blender’s credit and now they are going after the RFS. They think they can kill E-15 with the regulatory process that they profess to hate otherwise.

Here I am back using that word “hypocritical” again. Specifically the ethanol opponents are asking for the RFS to be modified so that the government picks livestock industries as the winner any time corn supplies are tight.

According to the consulting firm, MF Global, “The legislation would reduce the ethanol mandate by 25 percent when the corn stocks-to-use ratio is projected to be less than 7 percent and reduce it by 50 percent when the ratio would be 5 percent or less, a bare-bones level for supplies.”

That would put a lot more pressure on how stocks-to-use ratios are calculated. It would also not accommodate for times when global grain stocks are in surplus, but U.S. stocks are tight. The livestock industry has had no problem importing wheat to feed from Canada or Black Seas grain exporters or with exporting corn to China, Japan or Korea, but they hate ethanol even though they get a third of every bushel back as feed from DDG.

While drought can be a risk to all endusers, Purdue economist Chris Hurt, who is obviously not getting paid by the livestock lobby, said that the U.S. has the corn production capacity to meet all food and fuel needs mandated by the RFS. The trend line yield increase in corn is enough to supply needs. Add some acres and get good weather and we will all be dealing with cheap corn again.

What would the effect be if NCBA was successful reducing ethanol production? Livestock industries would stand responsible for the spike in gas prices that would result. Ethanol Monitor editor, Tom Waterman added, “Has anyone thought where that gasoline would come from? Currently, we would be hard pressed to make it domestically, so we would be looking offshore to places like Venezuela and the Middle East via Western Europe.”

“U.S. capacity will not allow for that big of an increase in a short period of time. That means one thing – rapidly escalating gasoline prices – therefore, escalating crude prices as well, and that would, in the end, escalate retail gasoline prices, further damaging the economy and stifling consumer spending” leaving consumers less cash to spend on beef.

NCBA is only thinking of its regional interest over those of Midwest agriculture, consumers, and the country.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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