September 20, 2007

 

Study shows ethanol subsidies may have cost US meat producers billions more
 

 

US corn buyers may have paid an additional US$16 billion for corn because of government ethanol subsidies, an agricultural economist commissioned to do a study on the subject said.

 

The study was commissioned by the American Meat Institute, National Chicken Council and the National Turkey Federation.

 

Thomas Elam, the agriculture economist conducting the study, said increased feed costs for meat producers- spurred on by the subsidisation of corn-based ethanol - are translating into higher retail food prices.

 

Elam said that because ethanol prices are tied closely to currently high oil prices, ethanol producers no longer need the 51-cent-per-gallon federal Volumetric Ethanol Excise Tax Credit that the US implemented in 2005. The rule is set to run through 2010.

 

"The bottom line is that, with oil at US$80 a barrel, US ethanol producers simply do not need any federal subsidy in order to be able to afford corn ...," Elam said Wednesday.

 

"The only real consequence of the subsidy programme is to artificially raise the price that ethanol producers can afford to pay for corn, which raises the price of corn to everyone in the system ..."

 

Furthermore, ethanol demand for corn will continue to rise over the coming years, Elam said, pushing corn prices even higher as the refining industry grows to produce enough ethanol to meet the 10 percent oxygenate demand by gasoline producers.

 

The US is expected to produce about 6.5 billion gallons of ethanol this year, Elam said, adding that production would have to triple to 21 to 22 billion gallons per year in order to meet oxygenate requirements.

 

The Renewable Fuels Association and US Department of Agriculture Chief Economist Keith Collins said the forecast would be too high.

 

Earlier in the year, Collins said gave a figure of 13 billion to 14 billion gallons per year, while the RFA, in reaction to the study, said the ceiling would be "at most a 15 billion gallon market."

 

The USDA prediction of how much ethanol will eventually be needed to meet gasoline demand is based on a straight-forward 10 percent calculation because the standard gasoline-to-oxygenate ratio is 90-10. But Elam said it was not that simple because of the lower energy content of ethanol.

 

Elam did not say how long it would take to reach an ethanol production level of his prediction of 21 to 22 billion gallons per year, but USDA Secretary Mike Johanns predicted earlier Wednesday that US refiners could be churning out 12 to 14 billion gallons in under two years. 

 

The USDA and National Chicken Council chairman Dick Lobb agree, though, that the ethanol industry's demand for corn is hurting meat and poultry producers.

 

Lobb, in a teleconference with reporters Wednesday, said the National Chicken Council commissioned the study because the meat industries are the largest buyers of corn in the US and thus they have been most concerned about the rising costs of corn and all its implications.

 

Feed ingredients for chicken producers has gone up over 40 percent over the last year, he noted.