Feed Industry Demands Ethanol Policy Flexibility

“This is the year we’ve been afraid would come,” Phil Greene, vice president of Livingston, CA-based Foster Farms, stated.

In the midst of our nation’s fourth driest summer on record, crop yield estimates have plummeted, corn prices have skyrocketed and Greene points out the unavoidable truth: “We won’t have enough supply with this current scenario.”

Foster Farms is an integrated, family-owned chicken and turkey producer. Greene runs the commodity division and supplies hundreds of livestock operations — particularly dairy — throughout the Western United States.

Greene represented the American Feed Industry Association (AFIA) at a hearing before the House Subcommittee on Livestock, Dairy and Poultry in September 2011, to testify on the challenges and concerns facing today’s feed and livestock industry.

His testimony pointed to the federal government’s continued support of ethanol production through creation of arbitrary market demand through the Renewable Fuel Standard (RFS) as one of the main negative forces behind the poultry and livestock industry’s struggles.

The RFS — created by Congress in 2005 and administered by the Environmental Protection Agency (EPA), established the first renewable fuel volume mandate in U.S. history and required 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012. RFS2, part of the 2007 U.S. Energy Independence and Security Legislation, raised the mandate for ethanol blending — over 80% refined from corn — to 15 billion gallons by 2015.

“The government has set up a situation where all of the corn first goes to ethanol and whatever’s left over goes to feeding livestock and people,” explains Greene. “The USDA, the EPA and our elected officials need to realize they should immediately step away from ethanol mandates.”

In July the AFIA sent a letter to President Obama, urging him to waive the ethanol blending mandate, stressing that more than 40% of the U.S. corn crop goes to ethanol production.

Although the Volumetric Ethanol Excise Tax Credit — a policy that subsidized the production of ethanol — expired at the end of 2011, the RFS mandate remains in place indefinitely and legislative affairs experts don’t see a waive in the cards this year.

RFS impacts food

The year started off optimistically, with good planting conditions early in spring 2012. Farmers in the United States planted the most acres on record since 1937. But as July got underway, temperatures from nearly coast to coast — especially in corn growing states — soared into the 100s and rainfall was scarce. Then the USDA dropped its corn yield estimate to 146 bushels/acre from 160 bushels/acre projected just one month earlier, and corn futures began to rise dramatically on the news a severe shortage was in sight.

“Today, the livestock industry has to compete against a very speculative marketplace,” says Greene. “Ten years ago you may have seen a price range of $1.80 to $2.50 in a year for corn, and last week alone corn went from $6.79 to $7.76.”

High corn prices have a negative impact on consumers because, as Joel Newman, president and CEO of AFIA, pointed out in his letter to President Obama, “livestock and poultry feed represent up to 70% of the cost of producing this nation’s meat, milk and eggs. That cost is absorbed by the entire food chain, resulting in consumers paying higher costs for food; an unfortunate circumstance given today’s economy.”

Greene predicts the competition for corn will have a devastating effect on the livestock industry for months to come.

“It’s virtually impossible for all but the luckiest or best to work their way through this market,” says Greene. “The dairy, poultry, beef and pork markets are not nearly as volatile or as fast moving as the commodity markets, so it creates a lot of margin squeeze and presents significant challenges to the general livestock industry. We can’t all make it; not everyone will be able to survive.”