Farmers are besieged by low commodity prices and the specter of a North American Free Trade Agreement overhaul. And now they’re digging in for a rapidly escalating—and largely unexpected—fight over ethanol that could deliver seismic shifts to the farm economy.
President Trump is set to host another summit at the White House on Thursday with ethanol producers and oil-refiner representatives, just two days after key Senate lawmakers sat down with Trump and his top agriculture and environment lieutenants.
The Trump administration is mulling new policy to pare down compliance costs for the Environmental Protection Agency’s ethanol mandate, Sen. Ted Cruz, who has spearheaded the political opposition to the mandate, told reporters following the Tuesday meeting.
“The president leaned in hard,” Cruz said. “The objective has been and remains to find a solution that stops skyrocketing [compliance credits], which are made-up regulatory licenses from bankrupting refineries across the country and costing the jobs of tens of thousands of refinery workers.”
But ethanol groups are aggressively repelling the Cruz proposals, which they say would upend the market for ethanol and more technologically advanced biofuel. That could send the farm economy, which is driven in large part by corn, into further distress.
Some lawmakers are warning against an overhaul to the mandate, known formally as the Renewable Fuel Standard.
“Say you dramatically turned off the production of ethanol. You put a huge amount of grain back into the rest of the market and what would that do to supply and demand of corn prices and other prices? It would be huge downward pressure,” Rep. Frank Lucas, who sponsored the last farm bill in 2014, told National Journal. “Not everybody raises corn, but corn is the feed grain in this country that sets the price trend for wheat and barley and oats and everything else.”
Grain-farm representatives are echoing that concern.
“If you gut the RFS you are going to cause havoc in the rural economy. You’re going to see a drop in the corn price. You’re going to see a drop in the soybean prices. You’re going to see a drop in wheat prices, land prices,” National Association of Wheat Growers CEO Chandler Goule said.
A half-dozen farm associations, including Goule’s group and the American Farm Bureau Federation, pressured Trump in a letter earlier this week to maintain support for the RFS. The Midwest turned out in impressive fashion for Trump in the 2016 election. Iowa, Indiana, Ohio, Michigan and Wisconsin helped deliver the Republican candidate to the White House.
Corn producers currently fetch about $3.75 a bushel, a figure dwarfed by the historic high of more than $8.00 in 2012. But as recently as the year 2005, the price had dropped well below $2.
The feed market is competitive, and therefore a rise in corn prices—fueled by increased demand—would also increase other commodity values.
Nearly 40 percent of the corn produced in the U.S. annually is processed into ethanol, according to the Agriculture Department. The EPA mandate forces industry to blend 15 billion gallons of ethanol into the nation’s gasoline supply annually. Most gasoline in the U.S. contains 10 percent ethanol.
Many oil refiners, such as now-bankrupt Philadelphia Energy Solutions, don’t blend ethanol, choosing instead to purchase blending credits to comply with the program. The Philadelphia refiner’s nosedive emboldened RFS critics.
Cruz, who held a town hall at the refiner last week to drum up opposition to the mandate, is calling on the EPA to sell waivers for compliance credits at 10 cents, which would effectively implement a cap to the price of those credits, known as renewable identification numbers.
Ethanol groups and their Capitol Hill allies say that would slash demand for ethanol and upend the program.
“It’s clear this is going to be a very tough road ahead,” Sen. Joni Ernst told reporters after the Tuesday meeting on a call with Sen. Chuck Grassley. “We’re going to be fighting this out.” Both senators attended the meeting, alongside Cruz and Sen. Pat Toomey.
But others farm groups, such as pork, beef, and poultry producers, have complained in the past that the RFS raises feed prices and jeopardizes their bottom line. Many industry experts say the RFS helped to boost commodity prices to record levels between 2006 and 2012, the years which followed the enactment of energy statute that put the RFS in place.
Some critics of the RFS admit that dismantling the program would decrease a range of commodity prices and land prices in the Midwest but argue that those drops would restore traditional values.
“If you actually sort of deconstruct and look at farm incomes and farm prices over the last 15 to 20 years, we’re at or above where you expect to be for many commodities and in terms of overall cash income to the farming sector,” Vince Smith, a Montana State University professor and a visiting American Enterprise Institute scholar, told National Journal. “Are we talking about having people become destitute in Iowa? Well, probably not. Those stories are vastly exaggerated.”
Roughly 15 percent of U.S. corn production is shipped abroad, and increased exports could help to cushion the shockwaves linked to decreased ethanol demand, Smith said. That demand, meanwhile, would still likely persist in the absence of the RFS, based at least partially on demand for higher octane fuels, which ethanol blending helps to reach.
Cruz is proposing to also allow gasoline with higher ethanol blends, such as 15 percent, to be sold year-round—a favorite reform measure of ethanol supporters. Currently the EPA bans summer sales of those blends in a large part of the country, citing environmental concerns.
Still, ethanol allies on Capitol Hill are readily rejecting the Cruz proposal.
“Senator Cruz is going to continue to face stiff resistance,” Sen. Deb Fischer, one of the staunchest ethanol supporters on Capitol Hill, told National Journal.
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