It really didn't matter to them that farmers have added millions of acres to corn production and that the ethanol industry returns a third of the corn it processes as feed to livestock producers. We do not use 40 percent of the corn crop for ethanol, as ethanol opponents so often lie about, as 33 percent of the 40 percent becomes distiller's grain -- which is a very high quality feed -- with a larger feed displacement than corn. It became the second largest feedstuff used for livestock below corn and above soymeal.
Most anti-ethanol studies ignore the contribution of distiller grain because if they include it, their negative conclusions collapse. Livestock producers benefited for many years from farm subsidies designed to keep farmers producing burdensome supplies of feed grains, even though production costs exceeded prices. They had no problem with those subsidies as the benefit to their bottom line superseded any unexpressed philosophical problem with subsidies that they may have had back then.
We didn't find out about their aversion to subsidies until the ethanol industry received them and demand for corn increased the price of corn above the cost of production. They whined and cried about the ethanol blender's credit until it expired and then refocused their fit on the Renewable Fuels Standard, which mandates use of ethanol and biodiesel. The problem is that they did not get rid of the blender's credit quick enough to mortally wound the ethanol industry.
The credit did just what it was supposed to do; help a toddling industry like training wheels do youngsters learning to ride a bike. They took the training wheels off the ethanol industry by letting the blender's credit expire, and danged as it often happens -- it kept right on riding.
Now livestock producers are looking for another way to knock the kid over that will put him in the hospital on life support if they could. When IPPC President-elect, Greg Lear, met briefly with President Obama at the Iowa State Fair, according to Pork Producer Magazine, "He also asked the president to support a temporary suspension of the Renewable Fuel's Standard that requires a certain level of ethanol production."
What he was really telling the president is that hog producers can't use the percentage of distillers in hog rations that cattle producers can, so please make us more dependent on foreign oil and raise gas prices at the pump by eliminating our competition for corn. Please waive the RFS, therein depressing the cost of our feed so that we can make money exporting pork. If that sounds kind of small, self-serving and cheap, it is what it is.
First of all, the corn-based ethanol standard maxes out at 15 billion gallons and we are almost there. The mistake that livestock producers now make is in thinking that the RFS is driving ethanol production, and it is not. The RFS is a second-level backstop. It is oxygenate demand and octane demand that is driving ethanol demand. A waiver on the RFS would actually impact current production very little.
There are renewable identification numbers, banked from previous production that exceeded the RFS target, to use instead of ethanol to meet the RFS. Most of the RFS has nothing to do with corn, but with corn stalks and other cellulose. The corn-based RFS has nearly been met, but the move from 15 to 36 billion gallons will be cellulosic second generation. Maybe livestock producers will start crying over the competition for corn stalks too?
The primary reason that the corn supply tightened and the price of feed has gone up is the drought, the worst since the Great Depression era. Corn producers expanded corn by 5 million acres last year and will continue to do so until they overproduce again and corn prices fall. The only thing that curtailed production and cheaper feed costs this year was the weather.
Commercial livestock producers have this picture in their heads that, if the RFS was waived, then ethanol production and corn prices would fall precipitously. That is delusion. The E-10 blending limit is likely the biggest demand hurdle facing ethanol. That is why livestock organizations are working so hard to undermine market access to E-15.
Never mind this is contrary to all the philosophical poppycock that they have exposed about free markets. E-15 is not mandated and allows consumers to make a market choice. Commercial livestock producers can't stand that. Some livestock interests are now even opposing crop insurance subsidies because livestock producers don't get them. That too is short-sighted, because crop insurance adds millions of acres to feed grain production, lowering the cost of feed.
These guys like to portray themselves as the victims. That is why they want cheap feed at all costs.
David Kruse is president of CommStock Investments, Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet. CommStock Investments is a registered CTA, as well as an introducing brokerage.