Persistent drought complicates the politics of ethanol
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WASHINGTON -- Will you be paying more at the grocery store this year because of what you're burning in your gas tank?
Some lawmakers say you will, and they want the federal government to relax ethanol requirements so that more corn goes to feed livestock.
About 40 percent of the nation's corn crop goes to make ethanol.
The government's Renewable Fuel Standard requires that biofuels such as ethanol be blended with gasoline -- 13.2 billion gallons' worth this year.
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But this summer's drought has driven corn futures to new highs above $8 a bushel, prompting many livestock farmers and food companies to argue that rather than pumping corn into gas tanks it should be used for food.
Cargill CEO Gregory Page told CNBC this week that the Renewable Fuel Standard -- also known as the ethanol mandate -- was making business difficult for his company and others by driving up the cost of food.
"What we see are 3 or 4 percent declines in supply [that] lead to 40 to 50 percent increases in prices," Page said. "I think the mandates are what drives that price elasticity, which I think needs to be addressed."
A bipartisan group of 156 House members sent a letter to the Environmental Protection Agency asking it to use its power to temporarily relax or lift the Renewable Fuel Standard's ethanol requirements. Among its signers was Republican U.S. Rep. Chip Cravaack, the only member of Minnesota's delegation, and one of just a few Midwesterners to do so.
"During a time of drought, it's important that we work to keep food and feed prices down," Cravaack said.
At a news conference on Capitol Hill, Republican U.S. Rep. Bob Goodlatte of Virginia called the ethanol mandate a misguided government policy that is distorting markets.
"If you are a wheat producer and you find that corn is getting $8 a bushel, you're going to stop growing wheat and start growing corn," Goodlatte said. "Then the wheat supply goes down and the price of wheat goes up."
But a recent analysis by Iowa State University suggests lifting or relaxing the mandate might have only a modest affect on corn prices, unless the drought cuts this year's crop even more drastically than projected.
Minnesota is the fourth largest producer of ethanol in the country, and most of its lawmakers, including Democratic U.S. Rep. Tim Walz, continue to support the ethanol mandate.
"It's the drought that's causing the issue," Walz said of higher prices.
While national livestock and cattle groups have argued the mandate should be temporarily lifted in order to bring feed prices down, the Minnesota State Cattlemen's Association is sitting out this fight.
In part, that's because many farmers in southern Minnesota grow corn, raise hogs and own stakes in local ethanol plants, said Joe Martin, the group's executive director. So at least one part of their business will stand to profit.
Martin also notes that ethanol plants produce a form of animal feed known as distillers grains as a byproduct of producing ethanol. He and the Minnesota cattlemen would like the EPA to review the Renewable Fuel Standard targets every year to see if they are realistic.
"So we're by no means saying repeal the [standard]," Martin said. "But at the same time, we're saying we need to look each year at what is the corn supply and what is reasonable in terms of how many gallons of ethanol we can produce."
In a short statement, EPA officials said they would continue to monitor the condition of the corn crop before making a decision about how much ethanol should make it into gas tanks this year.
With Congress barely in session between now and the election, it's unlikely that legislation changing the Renewable Fuel Standard will become law this year.
But ethanol's clout on Capitol Hill is waning. Last year, the industry lost a big battle over continuing an important tax credit.
U.S. Rep. Collin Peterson, a Minnesota Democrat who is the ranking member the House Agriculture Committee, said the letter from the House members is a sign that opponents of ethanol feel emboldened.
"They're trying to capitalize on the situation, there's no question about it," he said.
Peterson said lawmakers should wait until harvest time to figure out how much damage the drought has done to the corn crop before making any hasty decisions about the ethanol mandate.
