Bloomberg News

Livestock Groups Ask Obama to Suspend Ethanol Law on Drought

July 30, 2012

Livestock and poultry producers formally asked the Obama administration today to suspend the nation’s renewable fuels standard because it is causing “severe economic harm” as corn prices surged to a record.

A coalition including the National Cattlemen’s Beef Association and National Pork Producers Council, sent a petition to the Environmental Protection Agency today asking for a waiver “in whole or in substantial part” the output requirements under the Renewable Fuels Standard for 12 months.

“An unsustainable situation has been created by the drought combined with the lack of cushion in corn supply due to the tremendous demand from ethanol producers,” Tom Super, a spokesman for the National Chicken Council, part of the coalition, said today on a conference call with reporters. “We believe that the RFS is causing severe economic harm during this crisis.”

The drought that sent corn prices to a record is devastating meat producers, and the demand for grain used to make ethanol is reducing available supplies to make food, the livestock groups said. The current mandate requires refiners to use 13.2 billion gallons of the biofuel this year and 13.8 billion in 2013. It’s “time to wean” the ethanol industry off government mandates, J.D. Alexander, the president of the National Cattlemen’s Beef Association, said on today’s call.

Higher Prices

“The higher-priced corn, the higher-priced cost of production, and higher cost of eventual products is going to be” passed along “to the consumer,” said Alexander, a Nebraska rancher who said he’s never seen anything like this drought in his 40 years in the business and added that he’s having trouble finding corn to feed his cattle.

The price of corn, the main ingredient in livestock feed, is up 61 percent since June 15 and reached a record $8.1775 a bushel today in Chicago as the drought erodes yield prospects for the crop that, last month, the government had forecast would be a record. About 64 percent of the contiguous U.S. is in moderate to severe drought as of July 24, according to the U.S. Drought Monitor.

Consumers may buy less meat as prices rise, John Burkel, the vice chairman of the National Turkey Federation and a Minnesota turkey grower, said on a media conference call. Stores are less likely to offer cheap turkeys during Thanksgiving this year, he said. While grocers typically advertise turkey at below cost to attract consumers for the entire holiday meal, retailers “can’t possibly continue doing that at these price levels,” he said.

Ethanol Industry

Bob Dinneen, the president of the Washington-based Renewable Fuels Association, the largest U.S. ethanol trade group, said in an e-mail that he expects the government to deny the waiver request.

“This summer’s hot, dry weather conditions have caused significant challenges for all users of grain,” including ethanol refiners, Dinneen said. “However, waiving the RFS won’t bring the type of relief the livestock groups are seeking, nor will it result in significantly lower feed prices.”

Ethanol producers have responded to higher costs by cutting output 17 percent to 796,000 barrels a day in the week ended July 20 from a record 963,000 on Dec. 30. Poet LLC, is the largest U.S. ethanol producer, followed by Archer Daniels Midland Co. (ADM:US), in Decatur, Illinois, and Valero Energy Corp. (VLO:US)

Arkansas Governor Mike Beebe supports the concept of suspending the mandate, Matt DeCample, a spokesman, said today in a telephone interview.

The purpose of the livestock group’s petition is “short- term relief,” Thomas Elam, the president of consultant FarmEcon LLC in Carmel, Indiana, said on the call.

To contact the reporters on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net; Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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