Ethanol industry: USDA report doesn't support RFS waiver efforts

By Susanne Retka Schill | August 10, 2012

The ethanol industry was quick to respond to the USDA’s Aug. 10 World Agriculture Supply and Demand Estimates report, which commodity traders look to for estimates of U.S. and global crop production and expected use. The ethanol advocates are looking for ammunition against the industry’s critics and the growing number of calls for modifying the renewable fuels standard (RFS), reducing one demand sector for the nation’s drought-reduced corn crop.

“We all know that the drought has taken its toll on our nation’s commodity production,” Growth Energy CEO Tom Buis said in a statement. “Yet even with the worst growing conditions in 57 years this it is still estimated to be the eighth largest corn crop in history thanks to today’s technology and the productivity of America’s farmers.”

“We will have enough corn,” Buis continued. “In fact, USDA’s report demonstrates how the market is already working to cut demand as they actually increased available corn stocks at the end of the year – showing over one billion bushels of corn surplus. Ethanol production is already down 15 percent in the last month alone. Any attempt to change the renewable fuel standard, our nation’s successful biofuel policy, would simply be a knee-jerk reaction to the benefit of Big Oil. The current policy has flexibility built in for exactly these types of situations.”

The Renewable Fuel Association’s statement also emphasized the RFS has built in flexibility designed to address situations such as the drought, and the market is the best option for rationing demand. “What this report does not do is provide justification for waiving the Renewable Fuel Standard for the rest of 2012,” the RFA statement said. “Given the abundance of RFS credits, ample ethanol stocks, and various other flexibilities, obligated parties under the RFS will have every opportunity to demonstrate compliance this year.”

RFA Chairman and CEO of KAAPA Ethanol Chuck Woodside outlined the reasons why a waiver of the RFS isn't required. He pointed out that the 2.6 billion RFS credits (renewable identification numbers, or RINs) refiners could use to meet their obligations represents 950 million bushels of corn. “This flexibility is already being put to use by the market as U.S. ethanol production has fallen 15 percent since the beginning of the year,” Woodside said.

After analyzing the report, the RFA will host a webinar early next week to outline the report's impact on U.S. ethanol production and the RFS. Details of the webinar will be released on Monday.

One of the nation’s largest ethanol producers also weighed in on the defense of the RFS. “Some in Washington have seized on Americans’ fear during this time and used it to try to undermine our country’s renewable fuel efforts, Poet LLC’s CEO Jeff Lautt said in a statement. “It is a lack of rain, not ethanol, that is causing corn prices to rise. Additionally, ethanol’s use of corn is often overstated. After factoring in the high-protein animal feed produced at ethanol plants, the industry’s net use of last year’s corn crop was only 16 percent.”

Lautt pointed to the way ethanol production has created jobs and new income for farmers, adding that, “It has helped drive higher yields and increases in corn production that creates a greater corn supply during times like these.”

He also argued that the RFS is long-term policy that has worked, helping boost farm income, lower dependence on imported oil and provide jobs in rural America rather than overseas. “Attacking long-term energy policy would be a poor response to a short-term problem,” he said, “And attacking a key farm market at a time when farmers face weather-related challenges just doesn’t make sense.”

The calls for a waiver have extended even further, to a United Nations official’s remarks. Bliss Baker, representing the Global Renewable Fuels Alliance, responded to the UN’s Jose Graziano da Silva’s comments for an easing of U.S. ethanol mandates. “While the current drought in the U.S. Midwest has placed tremendous pressure on farmers, any action to reduce or eliminate the RFS would be premature and have immediate consequences in lost jobs and an increased reliance on crude oil imports.” He cited the flexibility of the RFS, availability of RINs and reduced U.S. ethanol production as several reason why a waiver of the RFS is unnecessary.

Global grain production also is not in a crisis situation. “Globally, total grain output is expected to drop by 2.9 percent this year, but this global production is still expected to be the second largest in history with grain ending stocks 4 percent above the 10 year average,” Baker said. “It is also worth noting that the U.S. ethanol industry will use only 2.9% (net) of the world grain supply. In short, any calls for the indiscriminant waiver of the U.S. RFS this year is unjustified.”