Ethanol divides corn, livestock interests

The best customers for U.S. corn farmers are U.S. livestock producers, who buy half the corn produced in the U.S. as feed for their cattle, hogs and poultry.

But with corn prices more than doubling over the last six months because of the booming demand for ethanol, U.S. beef and pork producers are starting to take positions at odds with their friends in the corn industry. In particular, they are opposing tax and trade policies that offer incentives for corn-based ethanol production.

Last weekend, the National Cattlemen’s Beef Association adopted a tentative resolution calling on Congress to let current tariffs on imported ethanol expire. They also said Congress should let lapse a tax credit to U.S. companies that blend either foreign or domestic ethanol with other fuels. U.S. corn growers oppose both suggestions and have expressed dismay at the positions taken by their top customers.

The U.S. imposes a 54-cent per gallon tariff on imported ethanol and provides a 51-cent per gallon tax credit to ethanol blenders.

The National Pork Producers Council is expected to consider similar resolutions at its annual meeting in March, according to the group’s president, Joy Philippi, who raises pigs in Nebraska. Philippi said some farmers in that state can’t even purchase corn to feed their pigs this spring because corn producers have already contracted their production at today’s high prices to go to elevators or ethanol plants.

“Out here, corn is just about impossible to buy,” Philippi said. She predicts that some pork producers will go out of business if the price of corn remains high. It has jumped from less than $2 a bushel last September to more than $4 a bushel this week.

The problems that livestock producers are facing from high corn prices will likely put some members of Congress in awkward positions, since some of the biggest supporters of the corn industry in Congress also often have livestock producers in their states or districts.

“Corn affects an awful lot of people, some very positively and some very negatively, and I’m not surprised that that would pit some groups against one another,” said Sen. Ben Nelson (D-Neb.), who is starting to hear from both sides on the issue.

Nelson said the problem with removing the tariff is that it could flood the U.S. market with cheaper foreign ethanol, hurting the fledgling U.S. industry. At the same time, Nelson said, allowing the tariff to sunset on schedule in October 2009 is “certainly worth consideration.”

“I think we just need to take a careful look at any kind of government interference right now,” Nelson said. “I’m very concerned about the corn [price] being so high.”

Sen. Chuck Grassley (R-Iowa), a vocal supporter of the ethanol industry and ranking member of the Senate Finance Committee, said it would be the “wrong policy” to allow either the ethanol tariff to expire in 2009 or the tax credit to sunset on schedule a year later. But both the farm bill that Congress is expected to write this year and Grassley’s committee will review measures that would promote production of cellulosic ethanol, which is derived from switchgrass and wood chips. That alternative will help reduce the cost of corn and offer relief to livestock producers, Grassley said. He added he has also heard from some constituents about the rising prices facing livestock producers.

Down the road, Grassley suggested, it could be appropriate to let the ethanol tariff and tax credit die, perhaps even sooner than he anticipates. “But right now it’s the wrong policy … because we have an infant industry that’s just taking hold,” he said.

Grassley has already gone on the record as criticizing President Bush’s budget for not allowing for the continuation of the ethanol tariff beyond 2009, and he has pledged he will continue his efforts to extend the tariff. “Allowing the tariff to expire would undermine faith in the domestic renewable fuels industry and make our country yet more dependent on foreign energy sources,” said Grassley in a Feb. 5 statement.

Meanwhile, the National Corn Growers Association predicts corn prices will fall soon in any case. Key reasons include a larger corn supply thanks to increased planting and larger yields. NCGA Vice President of Public Policy John Doggett said that cattlemen would “have an opportunity” to revisit their policy, and that he hoped they would rewrite it before the current ethanol tariff and tax credit actually sunset.

Concern over the possibility of falling corn prices was also evident in a Jan. 6 NCGA statement, released a day after the cattlemen’s policy resolution became public. In the release, NCGA President Ken McCauley described it as “unfortunate” that several key corn customers are sending negative signals to the marketplace just as corn farmers make planting decisions. He suggested such comments could make the situation for livestock producers worse if corn farmers decide not to plant corn, which would lower supply and keep prices high.

But livestock groups take pains to emphasize that they support the broader goal of reducing U.S. dependence on foreign oil through the development of renewable energy. The resolution adopted by the cattlemen’s group says this should be done through a market-based approach as well as more research into renewable fuels that could benefit the livestock industry.

“The pork industry wants a level playing field,” said Dave Warner of the National Pork Producers Council. “Free markets should determine supply and demand.”

Philippi, the NPPC president, predicts that pork producers will consider calling for the elimination of the ethanol tax credit and tariff, or at least tie the tax credit to the oil market so that it would fall with oil prices. She also said the group might call for the releasing of acres in the conservation reserve program so that production could increase.