Resilience in the Face of Uncertainty

By Tom Bryan | September 12, 2012

If an industry is shaped by what it overcomes, the 2012 drought will make the U.S. ethanol industry stronger, smarter and more efficient. Like the roots of a dry plant reaching deeper into the soil for sustenance, ethanol producers are digging in for a tough fourth quarter and an uncertain 2013.   

At press time, the U.S. EPA was about 20 days from closing the comment period on the renewable fuel standard (RFS) waiver request, with calls for an extension unanswered. Regardless of whether more time for comments is allowed, the EPA won’t likely decide the matter until early next year—after the harvest results are known, after the presidential election and after the holidays.

Until then, however, producers aren’t just waiting around. Acting independently, they have been proactive in their response to the drought and this year’s resultant high corn prices. As Holly Jessen’s page 30 lead story, “RFS Under Scrutiny,” points out, more than two dozen U.S. ethanol plants are now idle and the industry is running at least 12 percent below its achievable capacity. In fact, Jessen’s story points out that the ethanol industry will cut its corn consumption by a projected 260 million to 500 million bushels in 2013, leading a global demand rationing effort without protest. 

One of the current ironies of RFS opposition argument, veiled mostly as an anti-mandate campaign, is that the market is driving both corn demand rationing and ethanol blending. The high price of corn is pressuring ethanol producers and livestock producers alike to adjust production, and the high price of gasoline is encouraging discretionary ethanol blending nationwide. Businesses are making these decisions, not the government. 

Food versus fuel, the other principal RFS opposition argument, is similarly ironic, given the ethanol industry’s role in driving new investments in corn breeding that has resulted in drought-resistant hybrids that improved this year’s U.S. crop performance. As Sue Retka Schill reports in her page-40 feature, “Boosting Corn’s Drought Performance,” 15 percent yield gains over nondrought-resistant corn, for some growers this year, was the difference between 150-bushel yield expectations being knocked back to 80 bushels per acre or 95 bushels per acre. You don’t have to be a farmer to understand the importance of those numbers.

Finally, this month, be sure to read Jessen’s other corn-focused feature, “Yield Wild Card,” on page 46, which addresses concerns about the effect of the drought on corn kernel quality and milling characteristics. Importantly, the story points out how producers are responding to the increased risk of aflatoxin that is likely to be present in the 2012 corn crop, and how some producers are examining discount schedules and alternative corn procurement strategies in the wake of the 2012 drought.

In the past decade, expanded ethanol production has stimulated corn production. That, combined with the improved varieties, will mean this year’s crop will still be sixth largest ever, if August’s projections hold up. That is quite remarkable, given this summer’s drought is ranked among the worst in American agriculture’s history. We expect that sort of resilience, as well, from the ethanol industry.

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“Testing for Traces,” a story published in the August issue of EPM, contained two errors. FermGuard Xtreme, a product marketed by FermSolutions Inc., does not contain multiple antibiotics. Its active ingredient is 100 percent erythromycin with no fillers. Also, although virginiamycin did at one time have a letter of no objection from the Food and Drug Administration, that is no longer the case.