Biofuels: Fuel Blend and Prices
Bloomberg writer Mario Parker reported on Friday that, “Growth Energy, an ethanol industry trade group, today asked the U.S. Environmental Protection Agency for a waiver that would allow higher blends of the fuel and lift demand for the struggling producers.
“The U.S. should raise the ratio of ethanol in gasoline to 15 percent from 10 percent, Growth Energy Co-Chairman Wesley Clark said today in a statement. Such a boost would create 136,101 jobs and add $24.4 billion to the economy by building new plants and hiring workers to operate them, he said.”
Friday’s article added that, “The EPA will review the waiver request ‘and act based on the best available science,’ Adora Andy, the agency’s press secretary said in an emailed statement.
“‘There’s a reasonably high likelihood that they’ll see the blend limit increase,’ said Mark McMinimy, a Washington-based biofuels expert. ‘The real question is the time it will take to get to that level.’”
On Saturday, New York Times writer Clifford Krauss reported that, “The Environmental Protection Agency and the Energy Department have been testing higher ethanol blends. The E.P.A. has nine months to review the request, but it could decide before that to increase the blend cap slightly, to 12 or 13 percent.
“Energy Secretary Steven Chu has indicated that he would favor at least a small increase in ethanol levels unless auto companies said there was a risk the change would damage their products.
“Wesley Clark, the retired general and co-chairman of the pro-ethanol group Growth Energy, said tests thus far had shown that ‘there is no technically significant difference’ between blends of gasoline with 10 percent ethanol and 15 percent ethanol.”
The Times article indicated that, “In a recent letter to the two Senate leaders, Harry Reid, Democrat of Nevada, and Mitch McConnell, Republican of Kentucky, the Alliance of Automobile Manufacturers joined refiners and several environmental groups in warning that a higher blend level of ethanol in gasoline would ‘lead to increased air emissions from gasoline-powered engines and potentially endanger consumers using these engines.’
“Food producers are also lobbying against raising the blend limit. They say any increase in domestic production of ethanol will divert corn from use as food and animal feed, raising food prices for consumers.”
Stephen Power reported on the ethanol waiver request in Saturday’s Wall Street Journal, and noted that, “Demand for the corn-based fuel has been falling. Consumers have cut back on driving due to the economic crisis, and the plunge in oil prices from last summer’s record high has pushed down ethanol prices, cutting producers’ profits. The industry also has been stung by high corn prices, which increase the expense of ethanol production.”
In a news release issued on Friday, Senator John Thune (R-SD) “[P]raised a waiver request submitted to the Environmental Protection Agency (EPA) on behalf of over 50 ethanol producers for the approval of up to 15 percent ethanol (85 percent gasoline and 15 percent ethanol) for use in non-flex fuel vehicles.”
“Higher blends of ethanol can help solve two of the challenges facing our nation: our overdependence on imported oil and the need to expand the use of renewable fuels,” said Thune. “Renewable fuels production continues to be an important economic engine for rural America, and moving to higher blends of ethanol is absolutely necessary to keep this industry growing and moving toward advanced biofuels such as cellulosic ethanol.”
Steve Everly reported on Saturday at the Kansas City Star Online that, “Eventually, Growth Energy would like to see the ethanol-blend standard raised in stages to E20 and possibly E25 over a period of years.
“The request comes at a pivotal time for the struggling ethanol industry. A boost in the legal limit would dramatically increase demand for an industry that has seen 23 plants idled amid falling oil prices, a worldwide credit crisis and a wave of bankruptcies.
“Although the move to raise the limit from 10 percent could be a boon for the industry, it is certain to reignite debate about the effects of higher levels of ethanol on cars, trucks and power equipment. Manufacturers have generally been cautious about raising the limit on ethanol, saying careful study is needed.”
With this background in mind, Reuters writer Charles Abbott reported on Friday that, “The expansion of the fuel ethanol industry will support U.S. corn prices and plantings this year and in the future, a University of Missouri think tank said on Friday.
“Larger ethanol use is ‘one of the major drivers’ in corn prices, said Pat Westoff of the Food and Agricultural Policy Research Institute. Because corn is the major feedstock for ethanol, larger use will bring larger plantings.”
[Note: The complete FAPRI Baseline can be viewed here; related audio on this issue from Pat Westoff can be heard here (MP3-one minute); and a more specific breakdown of FAPRI projections regarding corn used for ethanol can be viewed here].
“Crop prices have fallen sharply since last summer due to economic recession. FAPRI forecast this year’s crop will sell for an average $3.74 a bushel, down 15 cents from the 2008 crop average but still the third-highest price on record,” the Reuters article said.
Mr. Abbott added that, “In an economic baseline book released in February, the Agriculture Department also said ethanol demand, ‘in combination with other long-term factors, holds prices for corn and many other crops well above their historical levels.’ Like FAPRI, USDA said corn plantings will rise due to ethanol.”
Philip Brasher reported on Saturday at The Des Moines Register Online that, “The [FAPRI] forecast calls for net farm income to drop 20 percent, or $18 billion, this year, because of the plunge in commodity prices from last year.”
Mr. Brasher noted that, “Consumers should see lower prices in the supermarkets as a result. The forecast calls for food prices to rise a relatively modest 2.7 percent this year and 1.6 percent in 2010 as the lower prices for meat, milk and other products work their way to stores.
“The U.S. Department of Agriculture predicts slightly higher price increases this year — 3 percent to 4 percent — but that’s still below last year’s rate of 5.5 percent.”
In a related article regarding food prices, Matt McKinney reported on Saturday at the Minneapolis Star-Tribune Online that, “Leaders at both Supervalu and Safeway, companies that operate thousands of grocery stores in competition with each other and, increasingly, in competition with Wal-Mart, have seen the falling price of commodities as a call to prod the nation’s food manufacturers into lowering prices.”
The article stated that, “Supermarkets and their suppliers talk every day about prices, said one insider, but these days those talks are more contentious than ever as retailers argue that cheaper gas and cheaper corn — among other ingredients — should translate into cheaper corn flakes and produce.
“Yet that’s not where grocery bills are headed: Prices will rise 3 to 4 percent this year, say federal government estimates. That follows a 6.6 percent rise in grocery store prices last year, according to the U.S. Department of Agriculture. Taken together, the last two years of food price increases are the steepest since the early 1990s, according to the agency.”
Later, the Star-Tribune article pointed out that, “Supermarkets, meanwhile, have their own brands stacked up in their warehouses that could sell faster if national brands don’t drop their price, suggested [Steven Burd, CEO of Safeway].
“He went so far as to warn national brands that they would lose sales to his company’s brands if they didn’t drop their prices.”
Meanwhile, a separate Reuters news article from Friday (which was posted at DTN- link requires subscription) reported that, “The new ACRE subsidy will pay U.S. grain, cotton and oilseed growers $4.8 billion for crops harvested in 2009 and 2010, the Food and Agricultural Policy Research Institute estimated on Thursday.
“In a briefing book, the University of Missouri think tank said ACRE, the acronym for Average Crop Revenue Election, will pay more on average for northern growers in coming years than they give up in traditional subsidies.
“For growers in the South, traditional subsidies will provide more support. FAPRI estimated three-quarters of corn, soybean, wheat, barley, oats and sunflowers growers would enroll in ACRE, but 10 percent or less of peanuts and cotton” [Related graph available here].
The Reuters article added that, “FAPRI estimated ACRE payments of $14.65 an acre for corn, $19.17 an acre for soybeans and $18.90 an acre for wheat and $18.29 an acre for upland cotton in 2009/10. Farmers would give up in traditional supports $4.78 an acre of corn, $2.26 an acre of soybeans, $3.01 an acre of wheat and $118.65 an acre of upland cotton.”
Executive Branch Ag Issues
A recent article posted at the High Plains/Midwest Ag Journal stated that, “Congressman Jerry Moran stated his opposition to proposed changes to farm policy contained in President Obama’s budget proposal–released in late February–that makes clear the president’s intention to phase out direct payments to farmers and substantially change the crop insurance program. Moran’s concerns with the administration’s position on agriculture policy initially stemmed from the State of the Budget speech where the president proposed reducing direct payments to farmers. Also in late February, Moran learned that the U.S. Department of Agriculture Secretary Tom Vilsack, in a meeting with the U.S. Wheat Associates and the National Association of Wheat Growers, commented that, ‘the future of direct payments is not going to be an easy future.’”
The article added that, “Moran’s concern with the president’s budget proposal includes a provision that will change the test that determines who can receive direct payments. Under the president’s proposal, a farmer could experience a net income loss and be ineligible for direct payments because the president’s approach fails to take into account expenses. The change would affect over 4,000 Kansas farms, which is more than 13 percent of farmers in Kansas who have listed their primary occupation as farming.”
Likewise, a news release issued last week by Sen. Max Baucus (D-Montana) noted that, “In a letter to Secretary of Agriculture Tom Vilsack, Montana senator Max Baucus today voiced his concern over deep cuts to vital agriculture programs in the President’s FY2010 budget.
“As proposed, the President’s budget would cut direct payments to agriculture producers who gross more than $500,000 a year, cut funds for crop insurance, and doesn’t invest in agriculture research.”
The release indicated that, “That’s why I am concerned that President Obama’s Department of Agriculture Budget aimed at cutting subsidies…the President’s proposal to eliminate direct payments to farmers with sales above $500,000 does not successfully distinguish between struggling farmers and wealthy landowners. For example, this proposal would eliminate payments to a farmer who loses money if the farmer sells his wheat for $500,000 but has already spent $600,000 on expenses such as fertilizer, seed, and fuel.”
Steve Lackmeyer reported yesterday at The Oklahoman Online that, “With President Barack Obama making farm subsidy cuts to the wealthy a priority in his upcoming budget, Oklahoma’s Third District Congressman Frank Lucas launched a campaign about a week ago arguing just how the changes might devastate the state’s small farmers.”
However, the article noted that, “‘We’re talking about fixing a system that is broken,’ [Sandra Schubert, director of government affairs with the Environmental Working Group] said. ‘When we’re dealing with a deficit that is out of control, should we be giving money to multi-millionaires and to people whose farms aren’t even producing anymore? Fifteen billion dollars is a lot of money. You can do a lot of good with that money.’”
In a more broad-based look at the executive branch budget priorities, Carolyn Lochhead reported in yesterday’s San Francisco Chronicle that, “After two years of protecting her conservative Blue Dog Democrats by signing off on farm subsidies and avoiding immigration votes, [House Speaker Nancy Pelosi] has signaled a leftward shift, warmly embracing the Obama budget as the culmination of a vision she has fought years to achieve. ‘We are very excited, I guess is the word,’ Pelosi told liberal media representatives last week. ‘Now we have a president who shares our values and has the right priorities.’”
But Peter Nicholas reported in yesterday’s Los Angeles Times that, “President Obama is facing misgivings about his policy agenda from inside his own party, with prominent Democrats objecting to parts of his taxation and spending plans and questioning the White House push to do so much so fast.”
The article noted that, “Fissures among Democratic lawmakers have already emerged. Rep. Eric Massa is a Democrat in a rural New York district where dairy farms and wineries have a major presence. The budget blueprint that Obama released last month would phase out subsidies to farmers whose sales exceed $500,000 a year.
“Massa said the cutoff would apply to ‘every single farm’ in his district.
“‘We’re going to have a hard time passing this budget as it is,’ even without ending the payments, he added.
“‘Frankly, I’m not about to abandon America’s farms in favor of America’s boardrooms. I won’t be part of that plan,’ he said.”
Philip Brasher noted in yesterday’s Des Moines Register that, “When it comes to farm policy, the Obama administration is bringing more change than many farmers bargained for, including some who supported him.
“It’s not just the proposal to eliminate direct payments to farmers who have more than $500,000 in annual gross sales, a level that would cut off the typical full-time farmers without regard to their profit or loss in a given year, critics say.”
Mr. Brasher stated that, “Farmers say that Agriculture Secretary Tom Vilsack is unfairly pitting them against poor kids by contending that the nation had to choose between subsidizing ‘high-income’ farmers or feeding hungry children.
“Leon Corzine, a former president of the National Corn Growers Association who endorsed Obama’s candidacy, said Vilsack’s argument was ‘ludicrous at best’ and ‘ridiculous.’”
And in an update posted on Friday at The Green Fields Blog (The Des Moines Register), Mr. Brasher indicated that, “The president of the American Farm Bureau Federation, Bob Stallman, says the Obama administration isn’t going to get its proposal to cut direct payments through Congress. The administration propose to phase out the payments over three years for any farmers with more than $500,000 in annual gross sales. The idea has been roundly criticized as unworkable by farm-state lawmakers.”
The update added that, “So how did the administration come up with something so sure to run into trouble? One theory is that they needed a certain amount of money to put into school nutrition programs and calculated a way to get it from the farm subsidy account. Stallman suggests the administration don’t have the people in place who could have told them that it wouldn’t fly on the Hill. ‘They’re working short-handed right now, so they don’t have the political people.’
“A source in the administration says the proposal is being reconsidered because of the opposition it has received.”