Livestock and poultry producers challenge ethanol subsidies

Ethanol production is growing so fast it's leaped years ahead of what even the most optimistic politician thought possible. Two years ago Congress set an ethanol goal of 7.5 billion gallons by 2012. The industry is on pace to pass that standard later this year.

For Minnesota turkey producer Kent Meschke it's like watching an uncontained wildfire; there's danger in the spectacle.

"What is the impact to people on food?"

"It's a feel good idea, it's a nice fuel and it makes everybody happy," says Meschke. "But what is the impact to people on food?"

Meschke has felt the heat from the ethanol explosion at his farm near Little Falls. Last summer corn was selling at bargain prices. Then in a couple of months everything changed. Grain traders decided ethanol was growing so fast it might outpace supplies of its main ingredient, corn. Suddenly, corn was a precious commodity and the price doubled.

"We were expecting higher corn prices, but not the rapid increase that we saw," says Meschke. "It took everybody by surprise."

Corn makes up more the half the formula of Meschke's turkey feed. He's watched the cost of that feed increase by a third or more. He says since last fall he's hardly made any money on this turkeys. He'd like to see something done to reduce demand for corn. He believes that would help lower prices. He says one thing that would help is to end federal ethanol subsidies.

"I think we have to look at feeding the animals first and people, the grain," says Meschke. "Instead of turning the food into fuel."

Meschke's main target is what's often called the blender's tax credit. An oil refinery gets a 51 cent credit for each gallon of ethanol it blends into gasoline. That helps boost ethanol use and corn demand.

Meschke would also like to see the state end it's ethanol subsidy. The legislature this year restored a 20 cent a gallon subsidy to about a dozen Minnesota ethanol plants. It had been at 13 cents the last four years following a 2003 budget cutting package.

Farmers who grow corn see the ethanol subsidy question differently. Curt Watson, the president of the Minnesota Corn Growers Association, supports keeping the federal and state ethanol subsidies.

"We feel strongly that the ethanol industry still is not mature. It's still growing and it still needs help doing it," says Watson. "Because at the core of this we think it's good public policy."

Watson says these may be good times for ethanol and corn, but that can change in a hurry. He says the subsidies provide economic protection against a downturn in the industry.

The divided opinions are playing out in Washington. Trade groups representing hog, cattle and poultry producers have called for an end to federal ethanol subsidies. For example, they want Congress to allow the blender's credit to expire when its current authorization ends in 2010.

The debate comes as ethanol plants enjoy record profits. A report says state subsidized plants in Minnesota last year recorded a 21 percent profit margin. Their return on equity was over 50 percent. Turkey producer Kent Meschke says ethanol companies can make money without subsidies.

"You're driving plant production to use more of our grain for ethanol production that is really probably reasonable," says Meschke.

Meschke says in time market forces will balance high corn prices and production costs. He says the changing economics of the turkey business will cause some farmers to either reduce production or leave the business. With fewer birds on the market, meat prices will rise. That will end up costing consumers at the grocery store. Meschke says the process has already started. Since last fall turkey prices have increased as much as 10 cents a pound.

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