FarmPolicy

July 25, 2014

Biofuel Issues- Sugar & the Farm Bill

Categories: Ethanol /Farm Bill

Philip Brasher, writing in today’s Des Moines Register, reported that, “The golden glow of corn ethanol has faded at a bad time.

“The ethanol industry faces a price-depressing glut of the fuel and is looking to Congress to increase the amount of biofuels that refiners must use.

“A Senate-passed energy bill would require use of 15 billion gallons of ethanol by 2015, more than double what motorists are expected to use this year. The mandate would be raised to 36 billion gallons by 2022.

“But the industry is seeing a backlash over rising food prices and warnings about potential environmental damage from increasing corn acreage and biofuels production.

“Many environmental groups and a loose coalition representing food companies, livestock producers and the oil industry have raised concerns about the ethanol mandate with congressional leaders.”

Mr. Brasher stated that, “The president of the Renewable Fuels Association, Bob Dinneen, struck back at his industry’s critics in a lengthy statement issued at the beginning of a biofuels conference last week. He said they are ‘seizing upon every unfounded fear to thwart the worldwide movement toward biofuels.’

“Dinneen focused his ire on oil companies. He said they fear losing market share to ethanol. But Doug Durante, executive director of the Clean Fuels Development Coalition, warned conference attendees that ‘there are a lot of questions being asked’ about ethanol, even in the Midwest.

“An energy bill passed two years ago fueled the ethanol industry’s growth by requiring that refiners use 7.5 billion gallons of ethanol annually by 2012. But ethanol plant capacity is expected to outpace that mandate by the year’s end.

“Ethanol prices have fallen by 50 cents a gallon in Iowa and Nebraska since July because of the developing glut, and plans for several new distilleries around the country have been canceled or postponed as a result. Existing plants are likely making only a few cents a gallon more than their operating costs, according to economists at the University of Missouri.”

However, Patrick Springer, reported yesterday at the In-Forum Online (North Dakota) that, “Three big ethanol plants under construction or slated to begin work soon in North Dakota are moving ahead despite a price slump that has prompted a rash of suspended projects.

“Work continues on plants by Tharaldson Ethanol near Casselton and U.S. BioEnergy near Hankinson, both scheduled to begin operations next year. Both plants will be capable of refining 100 million gallons of fuel a year from corn.

“‘There’s no talk of slowing down,’ said Russ Newman, vice president of development for Tharaldson Ethanol. The plant remains on schedule to start operations in December 2008.

“‘The market should be ready at that point,’ Newman said. Producer prices for ethanol, down substantially from last year’s highs, will rebound, he said.”

The article added that, “Demand for ethanol remains strong, Newman and other ethanol industry figures agreed. But distribution bottlenecks, especially for major fuel markets on the sea coasts, underlie the plunge in prices that have given some investors pause.

“The problem is in delivering ethanol to facilities where it can be blended with gasoline, ethanol experts said. So far, no pipelines have been built to carry ethanol, which can’t be used in petroleum pipelines…[P]roducers are getting $1.50 to $1.60 a gallon or ethanol – down significantly from the $3.50 a gallon it sold for at times last year, Newman said.”

Noting the drop-off in the market price of ethanol, Associated Press writer Dennis Gale reported last week that, “Ethanol prices have plunged, so Sen. John Thune, R-S.D., says he has a meeting scheduled with the director of the president’s economic council to stress the need to use more of the corn-based fuel additive.

“Thune said it’s important for the ethanol industry to increase the percentage of ethanol in gasoline.”

The AP article stated that, “The industry has been hit by rising corn prices and tumbling ethanol prices as a result of ethanol overproduction and limited capacity to blend the product with gasoline. The price of ethanol has slid by 30 percent in recent months.

“Bob Dinneen, president and chief executive of the Renewable Fuels Association, has said ethanol prices are at or near bottom but that an increased renewable fuel standard is likely to be included in a new energy bill in Congress.

“Some ethanol plants are shutting down and some existing plants are running at lower volumes, Thune said. ‘The market would double if you went from an E10 to an E20 blend,’ he said.”

With respect to the energy bill, Congressional Quarterly reported on Friday that, “After negotiations with key Republicans, Senate Majority Leader Harry Reid said Friday he was prepared to seek a conference with the House on energy policy legislation.

“‘The Speaker wants to go to conference. I want to go to conference,’ Reid, D-Nev., said on the floor Friday. ‘We know we can’t do a bill unless we include the Republicans in it.’”

The CQ item added that, “Sen. Pete V. Domenici, R-N.M., ranking minority member of the Senate Energy and Natural Resources Committee, wrote Thursday to Reid and Minority Leader Mitch McConnell, R-Ky., calling for a conference.

“Reid is seeking unanimous consent to bring the House-passed bill (HR 3221) to the floor, strike the text and replace it with Senate-passed language (HR 6), setting the stage for a conference.”

Issues regarding alternative, non-corn based feedstocks for ethanol have also been in the news recently.

Joseph B. White, writing today at The Wall Street Journal Online, indicated that, “Consider ethanol, the gasoline substitute that’s most popular in Washington — and the corn-growing regions of the Midwest. Ethanol from corn is problematic in part because it can’t be shipped in the existing fuel pipeline network.

“Meanwhile, distilling cellulosic ethanol fuels from grasses or wood chips is all the rage in green technology circles.

“But Grant Heffelfinger, Sandia’s [Sandia National Laboratories in Livermore, Calif.] biofuels program manager, has some words of caution. Cellulosic ethanol has great promise, he says. So does creating ethanol by using algae grown in brackish water. But the technology to do these is probably a decade away from being commercially viable.”

And with respect to sugar, Bob Davis and Lauren Etter reported in Thursday’s Wall Street Journal that, “Brazil’s sugar-cane-based ethanol is the only form of ethanol that is generally cheaper to produce than gasoline, according to an International Monetary Fund analysis, boosting Brazil’s plans to make itself a fuel powerhouse and undermining U.S. corn growers’ efforts to present themselves as price competitive.

“The analysis, part of IMF’s semiannual World Economic Outlook, also said none of the current crop of biodiesels can compete on price with conventional diesel, except perhaps for a biodiesel being developed from India’s drought-resistant jatropha tree.

“The report is likely to exacerbate the food-versus-fuel debate, which pits ethanol supporters against development experts and many in the food industry who complain that using grains for fuel has played a role in increasing the price of staples such as meat and cereal.”

Fore more on sugar issues, as was noted in yesterday’s FarmPolicy.com update, Reuters news reported on Friday that, “A [Senate Agriculture] committee summary of the proposed commodity section of the farm bill said the loan rate for raw cane sugar would be raised by 1 cent a lb and a program would be authorized to convert surplus sugar into fuel ethanol.”

Last Thursday, New York Times writer Clifford Krauss provided a more in-depth look at this development and nicely tied in issues associated with sugar production, ethanol and U.S. farm policy.

Mr. Krauss noted that, “Todd Landry, a farmer who conjures big stands of sugar cane from the muddy fields of southern Louisiana, has been struggling lately against droughts and freezes and hurricanes. Come January he will confront another peril: expanded sugar imports from Mexico.

“‘Will we have a flood of sugar coming across the border?’ Mr. Landry wondered in a Cajun drawl. ‘Survival is on our minds every minute of every day.’

“Mr. Landry and other sugar producers think they have spotted a life raft, and its name is ethanol.

“Taking a cue from Midwestern farmers who have improved their lot by selling corn to ethanol distilleries, sugar cane and sugar beet farmers want an ethanol deal of their own, paid for by American taxpayers.”

The Times article added that, “A little-noticed provision in the new farm bill working its way through Congress would oblige the Agriculture Department to buy surplus domestic sugar caused by the expected influx of Mexican sugar next year. Then the government would sell it, most likely at a steep discount, to ethanol producers to add to their fermentation tanks. The Bush administration is fighting the measure.

“Sugar producers say the cost would be relatively low and the plan would help keep prices at a level they consider fair. As a side benefit, the deal would allow the nation to produce more ethanol to mix with gasoline, displacing some foreign oil, they say.

“But ethanol producers are unenthused. And the plan is drawing fire from opponents of agricultural subsidies and from longtime critics of the sugar industry, who complain that producers already have one of the best deals in American agriculture.”

“‘The U.S. Department of Agriculture would be taking on a limitless commitment,’ said Robert L. Thompson, a University of Illinois professor of agricultural policy, ‘to buy any quantity of sugar offered at a guaranteed price, and that would get very expensive, very quickly.’”

Mr. Krauss also provided this background context to the sugar / ethanol / farm bill issue, “At issue is a provision of the North American Free Trade Agreement, the big trade pact meant to create a common market among Mexico, Canada and the United States. Though NAFTA was adopted in 1993, some of its more controversial provisions are only now taking effect.

“One of them will soon open the United States to unlimited sugar imports from Mexico — the biggest crack in years in the wall of price supports and protectionism the government, at the behest of the sugar industry, has erected against foreign competition. That system includes quotas to limit domestic production and tariffs to limit imports, resulting in a market price for sugar in the United States that is typically twice the world market price.

“The NAFTA provision will work in both directions, with the United States able to export to Mexico a form of corn syrup often used as a sweetener. That sweetener, much cheaper than sugar, could displace some sugar use in Mexico, making more available to ship to the United States.

“Amid uncertainty over what will happen, the nation’s 12,000 sugar cane and sugar beet farmers are appealing to Washington for an insurance policy. ‘If Mexico decides to overproduce and send that to our market, they have the potential to eat up our market,’ said James H. Simon, general manager of the American Sugar Cane League.”

Later, the article stated that, “The sugar ethanol provision has won approval in the House. With the support of Senator Tom Harkin, Democrat of Iowa and chairman of the Agriculture Committee, it may get through the Senate despite opposition from the administration and the food industry.

“The measure would be grafted onto an existing sugar policy so complex that even many farmers have trouble understanding it. The government limits the supply of sugar through production quotas and import restrictions, and it uses financial mechanisms to set an effective price floor.”

Near the conclusion of the Times article, Mr. Krauss stated that, “Ethanol producers, who could be forced to invest in new equipment to process sugar, say they do not have much use for the idea. ‘In today’s grain-based biorefineries, the amount of sugar you could introduce into the process would be fairly small,’ said Matt Hartwig, spokesman for the Renewable Fuels Association.

“Mr. Keenum [Mark E. Keenum, the Bush administration’s under secretary of agriculture for farm and foreign agricultural services] said the Agriculture Department did not want to be forced to sell only to ethanol producers, arguing that it might get a better price selling sugar for animal feed, pet food or industrial alcohol. On that point, the sugar lobby is willing to negotiate.

“The sugar producers say whatever its costs, the new farm bill is needed to save their industry.”

***

In more specific Farm Bill developments, DTN writer Chris Clayton provided additional analysis on some of the Senate Farm Bill framework in an article from Friday (link requires subscription).

In part, Mr. Clayton stated that, “More details are emerging about the new proposed commodity program being crafted by the Senate Agriculture Committee, and some initial analysis suggests that benefits would differ depending on state, crop and commodity price.”

With respect to the Average Crop Revenue Program, the DTN article indicated that, “The Average Crop Revenue Program, now being called ACR, is based on legislation offered this year by Sen. Dick Durbin, D-Ill., and Sen. Sherrod Brown, D-Ohio. Legislative language for the ACR has not been released.

“ACR would begin in 2010. Under the proposal, each year a farmer would make a decision to use the current commodity programs or the ACR, which would affect all covered commodities on a farm, instead of splitting commodities into separate programs.

“If approved by the Senate, the proposal would be a different direction for farm programs than what was proposed in the farm bill passed by the House of Representatives in July. That proposal kept the basic commodity structure in place, but allowed farmers to make a one-time choice to stick with the current counter-cyclical program or choose a national revenue-assurance counter-cyclical program.

“The focus for producers using ACR would be average state revenue for each commodity. It pays when the state revenue falls below a state guarantee. Each state would have a formula based on 90 percent of the average trend yield multiplied by a three-year moving average of the ‘pre-planting price.’”

Mr. Clayton noted that, “Carl Zulauf, professor of agricultural marketing and policy at Ohio State University, has an analysis of Durbin-Brown for 11 states, along with comparisons of the House farm bill at http://aede.osu.edu/….

“In his analysis, Zulauf said the importance of variation by state and crop cannot be underscored enough. Durbin-Brown was most beneficial in the Corn Belt, as well as Michigan and Washington state. Whether Durbin-Brown or the House farm bill benefited a farmer more depended on price, crop and state. The current higher commodity prices and the potential staying power of those prices also matters.

“‘The more you believe that prices during the 2007 farm bill will be higher than historical prices, the greater the advantage of Durbin-Brown,’ Zulauf said.”

As the Senate debate approaches, editorial opinion regarding U.S. farm policy is also appearing with greater frequency.

The Boston Globe editorial board noted yesterday that, “Earlier this year, the Democratic-led House passed a $286 billion bill little different from the subsidy-laden one passed by the Republican-led House five years ago. If the Senate, which is about to begin work on its bill, cannot produce something substantially better than the House, President Bush should not hesitate to veto the final version.”

And Elizabeth Becker indicated in today’s Washington Post that, “This was the year the antiquated and expensive farm subsidy program was to be reformed.”

After documenting a host of arguments and issues proponents have made for changing U.S. farm policy, Ms. Becker stated that, “Yet none of these arguments seems to matter. The 2007 farm bill is pretty much the same as previous versions. The legislation the Senate is due to take up this week won’t give the farm lobby or agribusiness any headaches.

“Why has the reform movement been such a flop? Because most members of Congress won’t be thinking about farms when they vote for the farm bill. They’ll be voting for the only part of the program that matters to them: food stamps — one of the last safety nets for the millions of poor who are their constituents.”

The opinion item noted that, “For most lawmakers, details about the farm program are irrelevant. It is the food stamp program that counts.

“That is the strategic beauty of the farm bill. While it is written in the Agriculture Committees — where the 30 farm districts that receive two-thirds of the subsidies are well represented — the bill wins support from the overwhelmingly urban and suburban Congress by virtue of its nutrition section, which authorizes the food stamp program.”

Near the conclusion of her piece, Ms. Becker stated that, “Who would vote against a bill that helps 25 million people with emergency food aid every year and the 4 million who rely on food pantries and soup kitchens every week?

“That is the quandary. There will be no deep reforms of farm policy as long as the welfare of the poor is tied to the welfare of corporate farmers. But hunger activists fear that the food stamp entitlement might disappear outside of the farm bill.”

“The prime example of this balance between the rural rich and the urban poor is this year’s savior of the food stamp program: Rep. Charles Rangel. The New York Democrat came up with the extra $4 billion for food stamps not by cutting into farmers’ subsidies but by proposing a new tax provision on foreign corporations,” the column said.

Keith Good

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