August 11, 2012
Vilsack Slams RFS Waiver Request
Published in DTN
OMAHA (DTN) -- U.S. Agriculture Secretary Tom Vilsack told ethanol producers Friday that livestock groups and a block of Congressional leaders are not paying attention to the market in making a push to waive the Renewable Fuels Standard.
In recent weeks a number of livestock groups petitioned EPA for a waiver and several Congressional leaders wrote a letter to the agency in support of a waiver, in response to worsening drought conditions and a short corn crop.
Vilsack said those industries that rely on corn already have scaled back usage in response to the drought. Even then, he said, U.S. farmers still are on track to produce the eighth-largest corn crop on record.
"It is important to emphasize that the market responds, the market reacts," he said during the American Coalition for Ethanol's annual conference in Omaha.
"Livestock producers are reducing their herds. The export markets are paying attention, production is down. We don't really know what the yield will be. But, built into the RFS process is flexibility. The industry has the capacity to respond. How significant is this in terms of price? In the scheme of things it is not as great as some people anticipate.
"I think it's important to understand that this is a concerted, well-financed, well-thought-out campaign against this industry. The benefits of this industry are too important to sacrifice. This is a big deal. It is important for this industry to be engaged."
Despite concerns about tight corn supplies, obligated parties including ethanol blenders and others have some 2.5 billion renewable identification numbers, or RINS, available on the market to meet obligations.
Vilsack said while livestock and other interest groups are waging a national campaign by pressing members of Congress and others to alter the RFS, ethanol producers should tell the story about ethanol to their communities.
"You need to make sure the country understands the facts," he said. "I think it is going to be important for the industry to push back a little bit on the message. We've got folks who say we need to scrap this thing. We do not want to turn our back on this industry.
"I think the message is, let's see if the market is working. We in agriculture do a pretty good job of talking to each other. We do not do such a good job of talking to the rest of the country."
USDA estimates Friday continued to show that corn supplies are likely to be much tighter in 2012.
USDA dropped corn production to 10.77 billion bushels, the lowest production level since 2006, DTN reported. Based on crop conditions on Aug. 1, USDA estimated yield at 123.4 bushels per acre, or 23.8 bushels below 2011 and the lowest U.S. corn yield since the early days of the biotech production boom.
USDA's estimate is slightly lower than the average market estimate pegged at 126.2 bushels per acre.
Though opponents of the RFS point to rising food prices as a reason to waive the mandate, Vilsack said the drought is likely to have little effect on prices into 2013.
Even with upward price pressure on corn, he said, the latest estimates are that food prices will rise from 3% to 4% by next year. Historically, food prices rise by an average of 3%, Vilsack said.
During a presentation Thursday at ACE, DTN Senior Analyst Darin Newsom said any move to eliminate or change the RFS would have an effect on the rural economy.
"If you're looking at the short-term solution for a short-term problem, fine," he said.
"This is the classic trap situation when you try to fix a short-term problem for a long-term effect. It would have a ripple effect on the Midwest economy. We don't need something that will change the structure of the market for five to 10 years."
Based on current estimates of the short corn crop, Newsom said ethanol could use up to 50% of the crop. As the drought has taken hold and crop conditions worsen, he said the market has responded.
"It's the one crop that has everyone so excited," Newsom said. "We will have outlier years like this one. We're about to the point of stabilization as far as corn's role goes. Gas demand is down and it hasn't recovered. We're seeing more cars being sold that are fuel-efficient. There's just not a demand for fuel. It's going to continue to come down.
"The issue is corn. It is a short-term problem. Ethanol stocks continue to come down. Corn's hard to come by; the market is taking care of itself. Last year we were able to export more ethanol. It shows signs of a market that works fine."
When the RFS passed in 2005 it was followed by rule changes in 2006 that allowed more investment money in commodities.
Newsom said there likely will be market pressure coming from those investors.
"If the Dow sees an opportunity to move more corn on short supply, you're going to see more money move into the corn market, and end-users will get more upset," he said. "Stronger ties between all market sectors make the situation tighter."
Though there has been some talk of U.S. ethanol producers taking advantage of corn imports, Newsom said, it won't be enough to make up for what could be a total corn crop some 2 billion bushels short.
"We have already seen news of Brazilian imports to the East Coast," he said. "The problem is Brazil uses a lot of its own corn so they don't have a lot to export. Maybe they can do enough to double imports. But we can't get 1 to 2 billion bushels of shortage from imports."