Drought, RFS attacks big topics at ACE conference in Omaha

By Holly Jessen | August 09, 2012

The ongoing drought and potential impact on the ethanol industry was a prominent topic at the American Coalition for Ethanol’s conference, which began Aug. 8 and ends Aug. 10. About 250 people met in Omaha, Neb., for the event.

ACE was formed in 1987, meaning this is the organization’s 25th year. Given the current situation in the ethanol industry, the conference was less a celebration than it was a time to mark that anniversary, said Brian Jennings, executive vice president. Looking back to its first year in existence, the entire U.S. ethanol industry produced about the same amount of ethanol as the industry has in storage today—about 800 million gallons of ethanol inventory. “It’s just one example of how far we have come as an industry,” he told the crowd.

Back then, the industry was working to simply produce gallons, while today the challenge is finding markets for the fuel produced and overcoming obstacles that artificially limit use of the renewable fuel. “The playing field is tilted much more in favor oil today, really more than ever before,” he said, “and the only tool, the only way we have to try and level that playing field, is the renewable fuel standard [RFS.]”

Clearly, ethanol’s opponents, people that have always been against the RFS, are using the drought as a way to attack the ethanol industry, hoping to reduce or waive the RFS. “The plain truth is this, that it’s the drought that’s the problem, not the renewable fuel standard,” he said, adding that it is becoming increasingly clear that the critics lack the hard evidence to prove that the RFS is causing economic damage, which is what must be proved before a waiver could be implemented. Otherwise, Jennings said, a governor would already have submitted a petition to the U.S. EPA and the process, which includes a comment period, would already be under way. Since ethanol’s opponents don’t have the data they need for an RFS waiver, they are resorting to misleading the public and convincing members of U.S. Congress to send letters bashing the RFS. As several third-party credible sources have already said, Jennings said, waiving the RFS won’t reduce corn prices in a material way and it won’t mean more feed availability. In addition, if the corn crop is as tight as some are expecting, obligated parties can use held-over 2011 Renewable Identification Numbers (RINs) to meet their obligations.

The ethanol industry does have some strong champions, including Sen. Chuck Grassley, R-Iowa, and Tom Vilsack, secretary of agriculture, who is speaking at the ACE conference Aug. 10. Grassley recently explained on the Senate floor that the RFS benefits all users of corn, not just ethanol producers. Before the ethanol industry built up farmers planted only 75 to 80 million acres of corn. Without the RFS farmers would not have planted the 95 million acres of corn planted this spring. That’s something Jennings wishes more people would talk about, he said.

In this difficult time, the industry must fight back in a unified way. It needs to go on the offense, pointing out ethanol’s benefits, Jennings said. He encouraged ethanol producers to invite members of Congress and local business leaders to tour their plants. Lars Herseth, president of ACE, added that they should participate in the annual DC Fly-in, during which ACE members go to Washington, D.C., to speak to legislators about the importance of ethanol. “That’s one of the ways we can counteract our opponents with deeper pockets,” he said, to spontaneous applause from the audience. The 2012 Fly-in is set for March 12 to 13.

Darin Newsom, senior analyst at Telvent DTN, also talked about the drought and what it will mean for the ethanol industry. A USDA report that will come out Aug. 10 is expected to significantly lower the estimated corn yield per acre as well as the number of acres that will be harvested, versus the acres that were planted this spring. The report that came out in May pegged corn yield at 166 bushels per acre and Newsom said he guessed the USDA report for August would be more like 126 bushels per acre—thanks to the most widespread
drought in 50 years. “It’s going to throw another log on the fire, underneath the ethanol industry,” he said.

Dramatic cuts in demand for corn will be needed and it will have a negative effect on all corn users. “In this situation, there’s not going to be enough corn to go around,” he said, adding later, “This isn’t going to end well, I hate to say that.”

Still, the market is already rebalancing itself on its own. For example, although Brazil has had a poor sugarcane crop in past years and has imported record amounts of corn ethanol from the U.S., the situation is now flip flopped and that country will be in a better position to export sugarcane ethanol to the U.S. Further, the current situation is a short-term problem due to weather, although it could have long-term ramifications, including a negative effect on the Midwest economy. Newsom expressed hope, but not a lot of confidence, that actions to fix this short-term problem will be short-term solutions. “The market is doing what it needs to do without a lot of intervention,” he said.

Regardless, he expects the RFS to be altered in some way at some point, although the talk is that it won’t happen until after the election. “There is enough noise that some changes could occur, possibly in 2013,” he said.