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From Ag Alert – Livestock groups welcome end of ethanol policies

http://agalert.com/story/?id=3719

By Steve Adler

When the clock struck midnight on Dec. 31 to usher in 2012, not everyone was
singing “Auld Lang Syne.” Livestock and poultry producers—particularly those in
California—were singing goodbye to ethanol subsidies and tariffs.

The start of the new year brought the end of a federal tax credit, created
more than 30 years ago, which many political observers thought was untouchable
because of the strength of the Midwest voting bloc in Congress. The policies
included a 46 cent-per-gallon subsidy to oil companies for blending ethanol into
gasoline and a 54 cent-per-gallon tariff on ethanol imports that made it
economically infeasible for other countries to produce ethanol for export to the
United States.

Livestock and poultry organizations called elimination of these policies a “a
good first step” in reducing high corn prices that have hurt dairy and poultry
farms, which rely heavily on corn to feed their animals.

Ethanol producers said the subsidy and tariff had served their purpose in
helping to establish a viable ethanol industry in the United States and they did
not protest their expiration. According to the Renewable Fuels Association in
Washington, D.C., the domestic ethanol sector has evolved, policy has progressed
and the market has changed—making now the right time for the incentives to
expire.

“Ethanol producers never intended for the tax incentive to be permanent. Like
all incentives, it was put in place to help build an industry and when
successful, it should sunset,” the association stated.

Livestock and poultry groups say there will be no immediate, significant
downward shift in corn prices, because the federal Renewable Fuel Standard
remains in effect. The standard mandates that 7.5 billion gallons of renewable
fuel be produced by 2012—6.25 billion gallons were produced in 2011. A 2007
revision in the law gradually increases that to 36 billion gallons by 2022.

“The elimination of the subsidies for corn in the U.S.—both the direct
subsidies that went to the oil companies in the form of the blender’s credit as
well as the tariff on imported ethanol into the U.S.—is good riddance,” said
Michael Marsh, CEO of Western United Dairymen. “But one of the things that will
continue to put upward pressure on corn prices will be the fact that the
Renewable Fuel Standard still stands. That is going to be a difficult standard
to fix.”

Marsh added that livestock organizations believe the standard must be
addressed “and we are working on it.”

Bill Mattos, president of the California Poultry Federation, agreed, noting
that it is important for livestock and poultry organizations to remain vigilant
to resist any efforts to have the policies reenacted while at the same time
working toward what he called a more reasonable approach to the implementation
of the Renewable Fuel Standard.

Mattos said that 2011 was a very difficult time for poultry producers,
particularly those with chickens being produced for meat.

“I don’t know one company that has made a profit this past year with
chickens. There are some turkey companies that are doing OK because the turkey
price has been very good, but most companies grow turkeys and chickens, and the
chickens have brought them down a little bit,” he said.

Dairy producers in California also struggled financially in 2011, primarily
because of the high feed costs, Marsh said. He said the five-year average cost
for corn totaled $219 a ton, while the average cost in 2011 was $298. Citing
California Department of Food and Agriculture statistics, Marsh said that in
2006, California dairy producers’ feed cost as a percentage of overall cost of
producing milk was 55 percent. In the third quarter of 2011, that went up to 65
percent.

“We are still losing dairies and I think that trend is going to continue,” he
said. “We will have continued consolidation in the industry. We have a number of
dairies that in going through the crisis of 2008-2010 had to borrow additional
money against existing assets, and getting refinancing today for some dairy
operators is very difficult. We continue to see sellouts of dairy operations,
including some that have been family operations for generations.”

It is likely, Marsh said, that the ethanol policies also hindered development
of next-generation biofuels produced from something other than food crops. Now,
he said, there is new hope that the elimination of the policies may bring about
renewed interest in research and development for the creation of the next
generation of biofuels from products such as switchgrass, compost or other
commodities that would not be in direct competition with corn.

California is a net importer of corn for animal feed, primarily because of
the high cost of agricultural land in the state compared to farmland in the
Midwest, Marsh said.

The Renewable Fuels Association predicted that higher world prices for corn
would lead farmers in other parts of the world to plant more corn instead of
other, less-profitable crops. The RFA said U.S. farmers “have a history of
responding quickly to market signals by adjusting acreage and switching crops to
best capitalize on current and expected prices.”

(Steve Adler is associate editor of Ag Alert. He may be contacted at sadler@cfbf.com.)

Permission for use is granted, however, credit
must be made to the California Farm Bureau Federation when reprinting this item.

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