Investment in U.S. ethanol production, which along with a drought-plagued crop is being blamed for near-record corn costs, may decline should federal use requirements for the biofuel be reduced, Agriculture Secretary Tom Vilsack said.
At least 25 U.S. senators and 156 House members have signed letters asking Lisa Jackson, administrator of the Environmental Protection Agency, to suspend or lower mandates on how much ethanol the country must use this year and next. Last week the Obama administration said it’s reviewing ethanol policy. A review is appropriate, while a waiver may bring long-term harm to ethanol investment without having a major effect on food prices, Vilsack said.
“My concern is that we send a signal to investors of perhaps, less confidence in the industry,” Vilsack said in an interview today at the Iowa State Fair in Des Moines. “We need to see whether the market is responding” with lower demand in the face of higher prices, before making a decision to relax use requirements, he said.
Jose Graziano da Silva, director-general of the United Nations’ Food and Agriculture Organization, last week called for a suspension of U.S. ethanol-use rules to let more corn be used for food and livestock feed. The worst drought in 56 years has pushed corn futures up 60 percent since June 15. Prices reached a record $8.49 a bushel on Aug. 10 when the government forecast the corn harvest would be 13 percent smaller than 2011. Today, futures closed at $8.075, up 0.4 percent on the Chicago Board of Trade.
White House Press Secretary Jay Carney in Iowa yesterday told reporters that the U.S. Department of Agriculture and the EPA will be evaluating data to determine what should be done about the waiver requests and that he didn’t know if anyone has directly discussed the topic with the president. Last week, drought was affecting 87 percent of U.S. corn, 85 percent of soybeans, 63 percent of hay and 72 percent of cattle, according to the National Climatic Data Center.
Still, the dryness may be easing in some places. The drought in the lower 48 states eased last week to 61.8 percent from 62.5 percent, with improvement in all categories of severity except for the worst, the U.S. Drought Monitor reported. For the coming week, most of the Midwest and northern Great Plains are expected to have normal or below-normal rainfall, Michael Brewer of the climate data center in Asheville, North Carolina, wrote in an analysis.
While crops in some parts of the country are in worse condition than they were a week or two ago, “the overall impact of the drought is beginning to decline,” Vilsack said. The uneven effects of the dryness, which vary from farm to farm, make any predictions of harvest size difficult, he said. “I’m not sure we know all we need to know to understand what’s happening with this crop.”
The USDA on Aug. 10 predicted ethanol use in the year starting Sept. 1 would consume 4.5 billion bushels, down from 5 billion in the current year. Use for ethanol as a share of the estimated crop would rise to 42 percent from 40 percent.
A 2007 law that includes what’s called the Renewable Fuels Standard mandates the use of 13.2 billion gallons of biofuels such as ethanol this year, and 13.6 billion in 2013. The law is designed to help reduce the nation’s reliance on oil from overseas sources.
Companies including Poet LLC and Archer Daniels Midland Co. (ADM:US) produced 819,000 barrels (34.3 million gallons) of ethanol a day in the week ended Aug. 10, down 15 percent from a record in December. Stockpiles sank 1.1 percent to 18.4 million barrels, the lowest since Dec. 30, Energy Department data show.
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