I was a little surprised to see former Iowa State legislator and former U.S. Senate candidate Bob Krause, copy my Ethanol Plan E Challenge from a couple years ago, but I will forgive that as it was going toward a good cause – expanding ethanol consumption.
Krause wrote an op-ed in the Des Moines Register. In it, as part of a plan to avoid another Ag depression like the 1980s, he recommended that we, “Ask President Obama for a temporary emergency order increasing the national Renewable Fuel Standard for ethanol by 0.5 percentage points to soak up the crop surplus, while at the same time increasing national air quality.
An increase in RFS to 10.5 percent ethanol would come close to eliminating the billion-bushel surplus. The cost savings to the government in avoided support payments may be significant just in market loan rate reductions as well as loan deficiency payments.”
Krause is not a farm economist. First off, the RFS as written mandates use of 15 billion gallons of corn feedstock ethanol, not a specific percentage of ethanol in gasoline.
It is not an E-10 mandate. Yet the E-10 blend wall is real so it requires more blender’s pumps dispensing higher blends of ethanol for consumers to have access to more ethanol.
The industry is already physically producing in excess of the 15 billion gallons of ethanol including export demand called for in the RFS.
Between sales of E-10, higher ethanol blends such as E-85 and exports, they are already producing the equivalent of 10.5 percent ethanol in fuel. Changing fuel formulations from E-10 to E-10.5 would be a regulatory nightmare.
Krause said that we have a billion-bushel corn surplus that could be eliminated by increasing the RFS to 10.5 percent. Not accurate. We are now using approximately 5.275 billion bushels of corn, 40 percent of which is returned to livestock producers as distiller’s grain.
That means that we would have to increase ethanol production and consumption another 1 percent of total motor fuel usage equivalent or an approximate 10 percent increase in ethanol production in order to reduce the corn carryover by approximately 527 million bushels.
The USDA forecast the current corn carryover at 2.4 bb, which is a billion bushels too much. It would take something higher E-12 to use that extra corn.
Personally, I use E-30 which is the ideal fuel for my non-flex fuel vehicles. If all in the ag sector used higher ethanol blends they would be leading higher ethanol demand by example. They don’t. The petroleum industry would go crazier than it already is disparaging ethanol if the President did what Krause suggested.
There is no magic wand for the President to waive dictating ethanol production. All the RFS does really is protect market access for ethanol from predatory petroleum industry market practices.
The Ethanol Plan E Challenge was to increase ethanol consumption by promoting buying higher ethanol blends adding 10 percent to ethanol production to consume 500 mb more corn.
Farmers, and the ag sector (farm cooperatives like CHS) need to lead the way with their personal growth in ethanol consumption.
There are a significant number of new blender’s pumps in the works expanding consumer access to ethanol. Higher corn prices may reduce government support subsidies, but they don’t call them loan deficiency payments anymore. They are called ARC or PLC payments. LDP’s were a farm bill in the past.
Corn farmers who use just E-10 are part of the petroleum industry’s blend wall. I have alluded to corn farmers who use little ethanol/biodiesel as being the same as a cotton farmer with a closet full of rayon/synthetic fiber clothes.
Why would a farmer who doesn’t use his own product deserve any subsidy from the government? Why would we need, in this instance, for the government to mandate something that farmers should already be doing for their own interest?
Krause and I were heading in the same direction, improving the farm economy and reducing farm subsidies by boosting ethanol consumption. The first to take the Ethanol Plan E Challenge should be the farmers and the ag sector.
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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