By Jon H. Harsch
© Copyright Agri-Pulse Communications, Inc.
Washington, Oct. 15 – Based on past history, the Renewable Fuels Association (RFA) rejects charges that a reduced U.S. corn crop and increased ethanol use will drive up feed costs and food prices. Geoff Cooper, RFA's VP for research and analysis, responds to the latest “food versus food” warnings by pointing out that subsequent independent studies showed that such fears raised at the time of 2007-2008 spike in global food prices were mistaken – and that a major factor was commodity speculation, not ethanol production.
“Every objective re-analysis of the 2007/08 commodities bubble has largely absolved biofuels of having anything more than a negligible role in the grain price run-up and escalation of food prices two years ago,” writes Cooper. This time, he adds, the RFA is hopeful that the media and policymakers will “take a more measured and thoughtful approach to the discussion over current grain-market dynamics.”
The RFA report points out that this year “The Russian wheat failure, the subsequent influx of speculative investment into U.S. grain markets, strong underlying demand (particularly from the livestock sector), and the potential for a smaller-than-expected corn crop all are playing a role in the current market dynamic . . . By early September, there was more speculative investment in the corn futures market than ever before – even more than at the height of the 2008 bubble. As of September 28, non-commercial investors (such as hedge funds) held 373,000 net long corn futures and options. 'Index traders' held another 487,000 net long futures and options. This means, together, these investors controlled more than 4.3 billion bushels of corn – nearly equivalent to the amount of corn the ethanol industry will use in 2010. Speculators and index investors have no intent whatsoever of using the grain they control and are interested only in pushing prices higher.”
Source: “Ethanol & the 2010 Corn Crop,” Copyright © 2010 Renewable Fuels Association.
RFA concludes that “Critics of the agriculture and biofuels industries are attempting to draw parallels between the current grain market situation and the events of the 2007/08 marketing year. Yet, global grain stocks are substantially higher today than in 2007/08, and the potential reduction in U.S. corn production is likely to be offset by larger-than-expected grain production in other countries . . . It is also worth noting that the U.S. ethanol industry remains a relatively small user of grain in the context of global supplies. In 2010/11, U.S. ethanol producers are projected to use less than 3% of the world grain supply on a net basis. Because the ethanol industry consumes such a small fraction of the world’s grain, it is disingenuous to suggest that the U.S. biofuels sector is somehow driving global grain markets.”
Source: “Ethanol & the 2010 Corn Crop,” Copyright © 2010 Renewable Fuels Association.
Another RFA point: “The ethanol process utilizes only the starch portion of the corn kernel. The corn kernel’s protein, fat and other nutrients remain available to the feed market in the form of distillers grains, corn gluten feed, and corn gluten meal. Every 56-pound bushel of corn entering the ethanol process produces about 2.8 gallons of ethanol and 17 pounds of livestock and poultry feed. Thus, of the 4.7 billion bushels projected to be used for ethanol in 2010/11, approximately 1.4 billion bushels are more accurately characterized as being used for animal feed production. This means a net total of 3.3 billion bushels are being used strictly for ethanol production.”
RFA's Cooper writes that “The alarmist rhetoric over the past several days seems virtually cut and pasted from the raft of doomsday press releases and manufactured 'studies' that cluttered the media channels in 2008 when record oil prices and rampant speculation pushed grain prices to unprecedented levels and food prices to the highest levels in recent memory. For opponents of ethanol and beneficiaries of cheap corn, pointing the finger at biofuels has become the reflexive knee-jerk response any time grain prices start to rise.”
Cooper points to good news: “Reporters, policymakers and others who were duped by the well-funded and well-orchestrated 'Food vs. Fuel' campaign in 2008 are interpreting the recent wave of rhetoric with a healthy dose of skepticism and due diligence this time around.” He's also optimistic about avoiding a repeat of 2008 because the U.S. corn crop may be larger than the latest USDA estimate because “combines only recently began rolling in areas where some of the best yields are expected – and because “Global grain stocks are substantially higher today than in 2007/08, and the potential reduction in U.S. corn production is likely to be offset by larger-than-expected grain production in other countries.”
Cooper also notes that “the U.S. ethanol industry remains a relatively small user of grain in the context of global supplies. In 2010/11, U.S. ethanol producers are projected to use less than 3% of the world grain supply on a net basis.”
To read the Renewable Fuels Association's six-page report on “Ethanol & the 2010 Corn Crop,” go to: http://ethanolrfa.org/page/-/Corn%20Market.pdf?nocdn=1
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