By ANN HINCH
Assistant Editor

WASHINGTON, D.C. — Rather than going up off the U.S. Environmental Protection Agency’s (EPA) E15 waiver last week, corn futures prices at the CME Group’s Chicago Board of Trade (CBOT) inched down.

Last Friday, December corn on CBOT closed at just over $5.62 per bushel, down about a nickel from the day before, as well as below the week’s high of $5.79 on Oct. 12. The beginning of last week was a boon for corn prices, off an Oct. 8 USDA report that lowered its estimate of nationwide production by nearly half a billion bushels from a month earlier.

On Oct. 13, the EPA waived a limitation on ethanol use for model year (MY) 2007 and newer cars and light trucks that would allow gas stations to sell E15 for their use, rather than just E10 (15 percent ethanol in the petroleum-ethanol blend, rather than 10 percent). Those who expected corn futures to rise again on this announcement were likely surprised by its December price closing down almost 10 cents that afternoon, as did subsequent months’ futures (by varying amounts).

According to CME, “Traders said that a rally in the dollar from a new low for the year this morning (Oct. 13) helped to set a more negative tone as the day wore on, as did a sharp sell-off in crude oil into early afternoon. Dry weather is expected across the Corn Belt today and through the weekend, with some scattered light showers possible on Monday and Tuesday” – in other words, excellent harvesting conditions.

The EPA’s waiver does not apply to MY2000 and older vehicles, and it is hedging on a decision for 2001-06 models until at least November, pending U.S. Department of Energy testing (see related article). According to an EPA statement from Oct. 13, “This represents the first of a number of actions that are needed from federal, state and industry towards commercialization of E15 gasoline blends.”

(Note: Drivers with flex-fuel vehicles may already use the much higher-ethanol E85 stocked at some gas stations. The E15 announcement and pending decisions include non-flex-fuel vehicles.)

Livestock groups not pleased
Corn prices were high enough before Oct. 13, say some livestock organizations. Pork producers are widely regarded as a group with much at stake when it comes to domestic corn availability. Not surprisingly, a National Pork Producers Council (NPPC) representative said last week the NPPC is “very concerned” about the effect an E15 allowance could have on the pork industry.

NPPC Ethanol Task Force Chair Randy Spronk, a Minnesota pork farmer, cited recent pork producer losses of nearly $6 billion over 2.5 years, mostly because of high feed grain prices from 2008.
“Given that the (USDA) Oct. 8 crop report revised down the expected yield and ending stocks of corn, we’re already seeing corn prices and the cost of raising a hog heading up,” he said in a statement.

He did, however, say the NPPC is withholding comment on the partial waiver “until we can consult with our economists.”

The National Cattlemen’s Beef Assoc. (NCBA) didn’t hesitate to criticize the EPA decision; its Oct. 13 statement opens with, “The (NCBA) questions the Obama administration’s commitment to U.S. livestock producers’ quest to sustain their family operations.”

Group President Steve Foglesong added, “NCBA’s members strongly oppose mandated production and increasing government intervention that artificially inflates the cost of feed ingredients. This waiver is a step closer to more government mandates.”

Over roughly the same period the NPPC says the pork industry lost $6 billion, this Illinois cattle producer stated his industry lost $7 billion in equity – also partly because of high feed prices. “U.S. renewable energy policies need to be evaluated carefully in order to determine the potential consequences the policies could have on all corn end-users, from importers to livestock producers,” he warned.
“Channeling even more corn into ethanol will, in time, only drive up the cost of chicken even more,” according to National Chicken Council President George Watts, who stated high feed prices “driven by the voracious demand for feedstock from the heavily subsidized ethanol industry” drove up the price of broilers 6 percent from 2008 to 2010.

“Consumers will end up paying for the ethanol industry’s demands. It is time to put an end to interference in the market and government mandates that benefit the ethanol industry and raise the price of corn,” he added.

“The (U.S. Grains) Council does not anticipate these (corn) production levels will dramatically alter the U.S. position in the global marketplace in the long-term. In the short-term, however, it will have an effect on price, and we need to be sensitive to that,” said USGC President and CEO Thomas Dorr last week, after both the USDA production estimate report and the EPA announcement.
In addition, the pro-ethanol Renewable Fuels Assoc. (RFA) stated dried distillers grains – DDGs or DDGSs (with solubles) – should displace more than 1 billion bushels of corn this marketing year for livestock producers in the United States and abroad to feed their animals.

According to the RFA, last year 77 percent of distillers grains were divided between dairy and beef cattle and another 15 percent were fed to swine; poultry consumed 7 percent.

USDA Secretary Tom Vilsack approved of the EPA’s waiver, stating it “provides assurance to farmers, ranchers and the renewable fuels industry that the government backs the use of homegrown energy in our cars and trucks. At the same time, more work is needed and we hope EPA and the Department of Energy complete an evaluation of 2001-2006 models soon.”

According to Growth Energy, the coalition that requested the E15 waiver in 2009, with E15, “the U.S. could create 136,000 new jobs, decrease carbon emissions equivalent to removing 1.35 million vehicles from American roads, displace as much as 7 billion gallons of gasoline from imported oil and expand the market-demand necessary to help make cellulosic ethanol commercially viable.”
Tomorrow morning, Vilsack is slated to give a speech on the progress USDA and other federal agencies are making toward the 2022 36-billion-gallon biofuel production goal mandated by the Renewable Fuels Standard.