Texas ranchers back ethanol-waiver request

by William Pack

Texas ranchers and dairy operators Monday backed a request by national agricultural producers to suspend the nation’s Renewable Fuels Standard because it is causing corn prices to soar and livestock producers to suffer.

A coalition including the National Cattlemen’s Beef Association and National Pork Producers Council, sent a petition to the Environmental Protection Agency asking for a waiver “in whole or in substantial part” to 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 Monday on a conference call with reporters. “We believe that the RFS is causing severe economic harm during this crisis.”

Texas, the nation’s largest beef-producing state, did not have any organizations formally named on the petition, but cattle, hog and dairy producers in the state not only endorsed the request, several called for an end to the fuels standard standard altogether.

“It’s not just for the cattlemen, it’s for the consumers,” said Bill Hyman, executive director of the Independent Cattlemen’s Association of Texas. “Everything is going to be higher because of the use of corn in ethanol.”

The drought broke records in Texas last year but is beginning to lift in parts of the state, giving producers hope that feed costs would fall. If the drought intensifies in the Midwest and other corn-producing areas and more of the crop is diverted to ethanol, ranchers and dairy operators are likely to face another year of record feed costs.

“Dairy producers already are losing money on the milk they’re producing,” said Darren Turley, executive director of the Texas Association of Dairymen. “”We’ve seen some relief this year, but grain is staying high. Corn is the grain of choice, and really, there’s not another product to replace it.”

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 in petitioning the EPA.

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 Monday’s call.

“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 Monday 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 United States 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.

Bob Dinneen, the president of the Washington-based Renewable Fuels Association, the largest U.S. ethanol trade group, said in an email 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, in Decatur, Ill., and Valero Energy Corp.

Valero spokesman Bill Day said since the company both produces and buys ethanol, it can see both sides of the argument for the fuels standard.

“We just follow the law,” he said.

But Day also said the high price of corn had caused Valero to temporarily shut down two of its 10 ethanol production facilities because they were losing money.

Texas Agriculture Secretary Todd Staples, who joined Gov. Rick Perry in unsuccessfully seeking a cutback in the fuels standard mandate in 2008, expressed support for the new request in an emailed statement.
“Congress contemplated this market catastrophe and specifically authorized EPA to waive the mandate under the very circumstances we’ve seen develop over the past several years – which are now exacerbated by the drought,” Staples said. “How close do we have to come to a foreign dependency on food before EPA officials understand this and use the authority Congress directed them to use?”

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

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


Bloomberg News contributed to this report.