The Environmental Protection Agency's delay in setting the Renewable Fuel Standard is contributing to low corn prices, hurting Iowa's economy and costing jobs. "Farmers aren't buying equipment and John Deere is laying people off," Gov. Terry Branstad told reporters at the 2014 Farm Progress Show last week near Boone. "What EPA has done is not only damage farm income but the agency's indecisiveness has cost Iowa jobs in farm machinery and manufacturing."
"EPA has done some real damage, and they don't realize how harmful their actions have been," said Branstad.
Last November EPA proposed reducing the Renewable Fuel Standard for ethanol in 2014. The RFS mandates a certain amount of ethanol and biodiesel be blended with gasoline and diesel fuel each year in the U.S. motor fuel supply. EPA proposed reducing ethanol produced from corn in 2014 to 13.01 billion gallons from the 14.4 billion gallons initially required by Congress.
Low crop prices are pinching profitability
The 2007 Renewable Fuel Standard, a law passed by Congress, requires refiners to buy alternative fuels made from corn, soybeans and other renewable sources to reduce U.S. dependence on foreign energy. The RFS sets minimum amounts mandated to be blended and used each year. EPA is the government agency with the responsibility of finalizing and adjusting the yearly amounts, if an adjustment is necessary.
Speaking at the Farm Progress Show on August 26, Branstad pointed out that EPA still has not made a decision for 2014. "I feel like they're playing politics instead of doing what is right for America, and doing what is right for reducing our dependency on foreign oil, and improving farm income and creating jobs," the governor said.
Branstad noted the rise in food prices was one of the biggest arguments against an increase in the 2014 ethanol mandate. "The anti-ethanol people put out this garbage, when the corn price was $7 to $8 a bushel that it drove up the price of food. Well, have you seen the price of food go down? Corn prices have declined to where they are now below $3.50 per bushel, but the price of food hasn't gone down at all."
At long last, EPA may finally issue 2014 RFS soon
EPA officials on August 22 sent their proposed final rule for the 2014 RFS to the White House Office of Management & Budget for final review. If the RFS for 2014 is approved, an announcement is expected soon. It's already 8 months late, as there are only 4 months left in the year 2014, Branstad noted.
Iowa Secretary of Agriculture Bill Northey also spoke at the Farm Progress Show, He's hopeful EPA, when it finally issues a 2014 mandate, won't cut quite as much in the RFS as initially proposed last November. "What I'm hearing now is the amount will be better than what EPA initially announced, but it won't to be as good as under the original RFS amount for 2014, as called for by Congress in the existing legislation that was passed in 2007," says Northey.
Iowa should be expanding ethanol production
Iowa should be expanding its ethanol production, given today's low prices for corn. But instead, companies are hesitating to invest in ethanol production, says Northey. "EPA's delay and indecision has taken away the optimism that was there," especially for expansion of the next generation of ethanol, such as cellulosic ethanol. That process uses corn stover instead of corn to make the alternative fuel.
"Without a green light from EPA, I don't think we'll see that investment in technology and improved efficiencies," said Northey. Companies with facilities in the state, such as Poet-DSM, Quad County Corn Processors and DuPont are opening their cellulosic ethanol plants in Iowa this year. And they hope to sell their cellulosic technology to existing corn ethanol plants, so other plants can also start making ethanol from cellulosic materials. "But we're losing out on that next advancement in biofuel technology—if EPA doesn't allow it to happen," notes Northey.
Corn, soybean prices unlikely to rebound soon
In the Iowa State University exhibit at the Farm Progress Show, ISU Extension economists, agronomists and other specialists were fielding questions from farmers. "Crop prices are falling, but the cost to grow next year's crops is not," observed ISU grain marketing economist Chad Hart. This situation of losing money on corn and soybean production will push many Iowa farmers into the red and could push some out of farming. "Profit margins in row crop agriculture are getting pinched," he notes.
Farm income for the U.S. is expected to fall 14% in 2014, to its lowest level in 4 years, says USDA. The impact will affect the entire state of Iowa, not just farm communities. "I think we're going to see significant slowdowns, and we're already seeing some," said Bill Northey. He referred to Deere & Company's announcements over the past two weeks that it is laying off about 1,000 workers in Ankeny, Waterloo and the Quad Cities.
DuPont Pioneer has laid off about 100 workers in Iowa, based on data supplied to Iowa Workforce Development. "All of these layoffs will have a significant impact on the Iowa economy," said Northey.
Sales of new and used equipment have fallen
Sales of both new and used farm equipment have declined 14% in the first six months of this year compared to the same time a year ago, said Andrew Goodman, head of the Iowa-Nebraska Farm Equipment Dealers. Used inventory has climbed 13%. A recovery will depend on when crop prices rebound, he says.
Northey and Chip Bowling, incoming president of the National Corn Growers Association, said farm groups are pushing for seed, fertilizer and other ag companies to lower prices for farm inputs and aid the cost of production for farmers. "It won't be easy, it won't be fast, but costs will have to come down," says Northey. "Certainly the land investment and cash rents that are being paid for 2014 aren't going to return the same with $3 corn as $6 corn."
Bowling said NCGA is trying to boost corn exports. Also, the corn growers are lobbying U.S. leaders to abandon the proposal to reduce the federal RFS ethanol mandate, and they are trying to get China to lift trade restrictions.
Will cost of crop inputs eventually come down?
A decline in the cost to grow a crop will take time. In recent years corn prices and production costs have risen sharply. But the retreat will come much slower. "At some point you will see a reduction, an adjustment—in seed, fertilizer, machinery and other input costs," says ISU's Hart. "But it'll take a while, as there is always a lag time, perhaps two years."
Paul Schickler, president of DuPont Pioneer, also speaking at the Farm Progress Show, said his company has no plans to lower seed prices. The cost of Pioneer seed didn't spike at the same pace that commodity prices did. He also says most farmers aren't interested in skimping on planting productive seed. "One of the most important decisions farmers can make is to plant the best seed genetics for their fields."
Bowling, the incoming NCGA president who farms in Maryland, says farmers across the country are worried about high input costs, with low corn and soybean prices, for 2015 crops. "Farmers aren't going to be able to afford to plant the same amount of corn acres as intended, if input costs don't come down, knowing they're going to lose money going into this 2015 crop. That doesn't make good business sense."