State ag groups on opposite ends of ethanol mandate

Despite what could be Nebraska's second largest corn crop ever, state crop and livestock producers were on opposite ends on the effectiveness of the federal ethanol mandate.

Testifying at a Senate Agricultural Committee hearing on Monday in Omaha, Michael Kelsey, Nebraska Cattlemen executive vice president, said his organization strongly supports Nebraska's ethanol industry.

"However, many believe that the only way to develop renewable fuels is to mandate their production and use," Kelsey said.

Kelsey was critical of the Renewable Fuels Standard, which next year will require approximately 3.5 billion bushels of corn. That's nearly 30 percent of what is currently grown in the United States.

"Mandating production and usage has never been good over the long term for any industry," Kelsey said.

But Jim Jenkins, Nebraska Ethanol Board chairman, testified that Nebraska is the nation's second largest ethanol-producing state.

"I have a good sense of the positive impacts generated by that industry in many sectors of the state, including the livestock industry," he said.

Nebraska has 22 ethanol plants with a capacity of 1.6 billion gallons, using 500 million bushels of corn.

Last week, the U.S. Department of Agriculture's National Agricultural Statistics Service, Nebraska Field Office, forecast the state's corn crop at 1.43 billion bushels.

While that's 3 percent below last year, it's still the second highest of record.

Nationally, USDA estimated that producers will harvest a 12.3 billion bushel crop. That would be the second largest crop on record, just behind last year's 13.1 billion.

Jenkins said biofuel is a $20 billion industry, spanning 20 states and providing nearly 5 percent of the transportation fuel requirements of the United States. He said that's the first real competitive product challenge to the oil industry in its history.

"Oil companies are fighting back, spending millions of dollars attempting to undermine the nascent ethanol industry," Jenkins said.

At the heart of the dispute have been record high corn prices, which peaked in July at more than $7 per bushel, compared to less than $2 per bushel several years ago.

While ethanol has contributed to the increase in corn prices and therefore food prices, he said, other factors unrelated to corn ethanol have been driving up the price of food.

Those include oil prices up 900 percent since 1999, surging demand in Asia and Eastern Europe and drought in major food-producing areas.

According to the July Consumer Price Index, the major reason consumer budgets are being squeezed is because energy prices have climbed more than 29 percent from a year ago while food prices have climbed 6 percent.

Kelsey said mandated production "artificially sets a demand for the raw product that is unfair to other users."

"Ethanol from corn is an established technology, and demand should determine how much is produced, not the government," Kelsey said. "If the ethanol industry were required to compete for corn, as are all the other users, then the supply of corn would be allocated by market forces."

Jenkins said the cattle feeding industry, which consumes more than 30 percent of the corn crop, is ratcheting down its use of corn and instead using less expensive forage.

He said the cattle industry is beginning to use more efficiently distillers grains, replacing approximately 40 percent of the bushels of corn that went into the plant initially.

"As a cattle producer, I am confident that we will be stronger and more efficient in the era of $4-plus corn than the three decades of $2 corn, which contributed to overproduction and inefficient feeding practices," Jenkins said.

An argument put forward at the hearing by the livestock industry was that corn prices have more than doubled in the last year, causing widespread economic hardship for producers.

"Commodities by their nature are volatile, but until recently, the main driver of volatility has been weather, and spikes in grain prices were short-lived and rarely passed on to consumers," said Bill Lapp, principal of Advanced Economic Solutions in Omaha, who testified at the hearing.

"What we have seen in the past year has been an artificial market force, ethanol policies, driving a sustained increase in the price of grains," he said.

Presiding over the hearing were U.S. Sen. Ben Nelson, D-Neb., a member of the Senate Agriculture Committee; and committee chairman, U.S. Sen. Tom Harkin, D-Iowa.

While corn-based ethanol is not perfect, Nelson said, "it's been blamed for practically every problem under the sun."

"Ethanol is a major contributor to the U.S. gasoline supply," Nelson said.

Citing one study, Nelson said ethanol is the third largest contributor to U.S. gasoline supplies, behind only Canada and Saudi Arabia and ahead of Iraq and other OPEC countries.

"We want to see all of agriculture survive and prosper, including grain farmers, livestock producers, ethanol producers and food processors, while benefiting the average American family, our local communities, our national energy security and the national economy," Nelson said. "This is money wisely invested in the American Midwest and not in the Middle East.”