Commentary: Reduce the RFS now
With the current U.S. drought expanding and intensifying, about half the nation is now mired in its worst dry weather pattern in 24 years, and it is getting worse by the day. The time for reducing the Renewable Fuel Standard (RFS) is now.
With the rapidly deteriorating corn crop, prices have jumped 40 percent in just the past two months. As a result, U.S. livestock producers need relief from corn prices, which are reaching near-record levels, just to stay in business.
The gravity of the situation was summed up this week by Purdue University agricultural economist Chris Hurt who predicts “a long horizon of losses” for U.S. pork producers.
Many ag industry analysts have predicted calamity in commodity markets when mandates, such as ethanol production, are placed into effect by the government. The growing debacle in the U.S. corn market proves their worst fears.
In order to achieve the federal mandate for ethanol production in 2012, the Environmental Protection Agency (EPA) estimates that nearly 12.2 billion gallons of corn-based ethanol will be required, which will consume about 40 percent of the U.S. corn crop. What EPA has not said, is that it will reduce the mandated ethanol production levels in the case of a severe drought.
Just this week, USDA reduced their projected corn yield to 12.97 billion bushels for the current growing season, down 1.8 billion bushels from last month’s estimate. Meanwhile, the nation’s mandated corn ethanol production continues right along with the expanding drought and rapidly escalating corn prices. Something will have to give—and soon.
Yet, there is no word from EPA that they are even considering taking their foot off the ethanol throttle. It seems they are okay with U.S. residents cruising by millions of acres of withered crops as long as they have ethanol in their gas tanks.
In the 18 primary corn-growing states, 30 percent of the crop is now in poor or very poor condition, up from 22 percent the previous week, according to the U.S. Drought Monitor report released Thursday. And, it may very well get worse. Hope is dwindling for adequate moisture to restore crop condition with much of the country now in need of 15 to 20 inches of rain.
USDA Secretary Tom Vilsack obviously is aware of the plight of farmers and livestock producers but said this week that he is not yet ready to recommend that the RFS be scaled back. What will it take to make that declaration? $8 corn, $9 corn, $10 corn? Your guess is as good as mine.
The effect of the drought will eventually become apparent even to those who don’t pay attention to the disaster brewing on farms and ranches throughout the nation. Higher food prices will get the attention of everyone soon.
What will it take to lower the RFS? Ironically, it may be the ethanol industry itself that convinces EPA it is time to ease up on their revered mandate. Some ethanol plants are now actually suspending production as their margins dry up along with much of the corn crop. It may be ethanol executives themselves who have to cry Uncle!
Reduce the counter-productive ethanol mandate now and stop ignoring the worst drought in a quarter century. And, the sooner, the better.