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Drought Causes Further Uncertainty for Energy Future

The country’s heartland has been experiencing a significant drought, one that has decimated much of next year’s corn and soybean reserves. With fewer crops for food for people, livestock, and biofuels production, decisions affecting the cost and availability of these cash grains will almost certainly become political.

Several state governors and officials have asked the U.S. Environmental Protection Agency to waive the Renewable Fuel Standard for 2012 and 2013 in order to reduce the ethanol industry’s demand for corn. These officials are banking that by keeping corn out of car engines, it can be made more available and at lower prices for livestock, poultry, and dairy producers.

On August 20, the EPA opened a 30-day public comment period to receive comments on the waiver requests. In the request for comment, the EPA states:
Section 211(o)(7)(A) of the Clean Air Act allows the Administrator of the EPA to waive the national volume requirements of the renewable fuel standard program in whole or in part if implementation of those requirements would severely harm the economy or environment of a State, a region, or the United States, or if the Administrator determines that there is inadequate domestic supply of renewable fuel.

Making decisions more difficult, the EPA, USDA, and other farm organizations will not be able to fully assess just how much damage the drought and other severe weather has had on overall production until the 2012 harvest is completed. At this time, the EPA estimates that the corn crop will be down 13 percent from 2011 numbers, and soybean crop will be down about 12 percent. Private industry believes that these numbers could be significantly greater. According to USDA data analyzed by the National Corn Growers Association, animal feed was the primary use for the country’s corn crop in 2011.

Regardless of the additional stress on livestock , poultry, and dairy producers, the EPA must determine if potential benefits to the agriculture community from suspending the RFS would outweigh additional costs in gasoline production and prices, as well as the cost/benefits of such a move on ethanol production facilities, suppliers who rely on the biofuels industry, and companies in the biofuels supply chain.  The possible shut downs, job losses, and other negative consequences must be part of the equation.

The bottom line is that consumers will feel a pinch both at the pump and on their dinner tables in the coming months.  But at this time, no one can accurately assess just how great that pinch will be…or where.