Following Bill Clinton’s suggestion, I’m trying to do the arithmetic and it’s not working. Somebody at the Environmental Protection Agency (EPA) must have worked out the numbers using the new math. On Friday, their numbers-challenged researchers joined hands with the USDA and refused to waive the Renewable Fuels Standard. Their bottom line showed on average temporarily setting aside the Renewable Fuel Standard (RFS) would only reduce corn prices by about 1 percent.
"We recognize that this year's drought has created hardship in some sectors of the economy, particularly for livestock producers," said Gina McCarthy, assistant administrator for EPA's Office of Air and Radiation. "But our extensive analysis makes clear that congressional requirements for a waiver have not been met and that waiving the RFS will have little, if any, impact."
But there is this little ongoing problem called the widespread drought. It’s the worst in the US since the 1950’s and it pushed the global food price index up six percent in July, according to a report by the United Nations’ Food and Agriculture Organization. On one hand, the USDA says the price of corn is no big deal; on the other hand, they expanded drought assistance in September to crop and livestock producers in 22 states.
The main driver of that expansion was the skyrocketing price of corn. Ethanol demand took about a third of the crop and a production shortfall helped bump up the price of a bushel to near record levels.
There seems to be a split among ag community special interest groups that rival the recent political schism. If you’re growing corn, you’re sure the EPA made the correct decision. If you’re buying corn as feed, you’re convinced the ‘fix’ was in.
Maybe the fix was in. Chasing down the arithmetic from other sources, I went to the Wall Street Journal. Their editors said “ethanol production is expected to consume about 42% of this year’s corn crop, and the current price of around $7.45 a bushel is sure to rise as the supply dwindles.” WSJ quoting Bloomberg News, said “that means that losses could rise to $0.36 a gallon based on December contracts for corn and ethanol. Last year ethanol makers were making a profit of $0.24 a gallon on ethanol.”
Looking elsewhere, I discovered that falling U.S. demand for gasoline, combined with high corn prices, have already forced the closure of several U.S. ethanol plants. Even with artificial price supports, ethanol makers are losing money on every gallon of the fuel they make this year. A mandate enacted during the Bush administration requires the production of 13.2 million gallons of ethanol to mix with gasoline this year. Demand, of course, has nothing to do with it.