RFS Waiver Would Have Little Impact On Corn Prices

RFS Waiver Would Have Little Impact On Corn Prices

Study by ISU economist finds that a total waiver of the Renewable Fuel Standard would reduce corn prices by about 5%.

Organizations representing the U.S. livestock and poultry industry sent a letter last week to the Obama Administration asking the federal government to temporarily suspend the mandate requiring ethanol to be blended into gasoline, a measure they say is having a devastating impact on livestock producers and consumers suffering through the worst drought to hit the U.S. in more than 50 years.

RFS Waiver Would Have Little Impact On Corn Prices

In a petition submitted to the U.S. Environmental Protection Agency, the coalition of 20 state and national groups representing cattle, chicken, turkey and pork groups asked for a waiver "in whole or in substantial part." They argued the drought and ethanol-for-fuel requirement is causing "severe economic harm" to their members, who will have to eventually pass on their rising costs of production to the public in the form of higher meat prices at local supermarkets.

The livestock and poultry groups contend the seven-year-old Renewable Fuel Standard, which requires 13.2 billion gallons of corn-based ethanol to be blended into the fuel supply for motor vehicles in 2012, has made it more expensive to acquire the feed they need, and a waiver could help lower prices by freeing up millions of bushels of corn.

Study shows repeal of RFS wouldn't achieve goals of livestock, poultry industry

However, a new analysis from the Center for Agriculture and Rural Development (CARD) at Iowa State University suggests that calls for the immediate reduction, revision or repeal of the Renewable Fuel Standard, or RFS, would not achieve the stated goals of those industries calling for such action.

"The desire by livestock groups to see additional flexibility in ethanol mandates may not result in as large a drop in feed costs as hoped," says ISU economist Bruce Babcock, author of the study. He analyzed 500 different scenarios assuming varying levels of corn yield this year. In his research, Babcock determined that a total waiver of the RFS would reduce corn prices less than 5% and cause less than a 5% reduction in ethanol production.

Ethanol plants are already reducing production because of higher corn prices

Babcock states the modest results are due to flexibilities in complying with the RFS in 2012 and 2013. Specifically, an estimated 2.4 billion excess Renewable Identification Numbers, or RINS, from previous years significantly lowers the economic impacts of a short crop, because it introduces flexibility into the mandate, says Babcock. Removing the mandate altogether would decrease corn prices by only 28 cents per bushel relative to the case where excess RINS are used for compliance.

Ethanol plants have reduced production to two-year lows in response to recently higher corn prices. Weekly ethanol production this summer has fallen below 800,000 barrels per day in the U.S.—a level not seen since June 2010.

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