The extreme drought that has continued to ravage US corn and soybean crops this summer will cause a sharp drop in US feed grain supplies, which are projected to be 2.2 billion bushels lower in 2012/13, according to the latest forecasts from the United States Department of Agriculture (USDA). The 2012/13 season average farm price for corn is projected at a record $7.50 to $8.90 per bushel, up sharply from the $5.40 to $6.40 per bushel that was projected in July. If the drought continues to affect corn and soybean crops at the levels forecast, corn yield will be the lowest since 1995/96, even though the amount of corn planted this year was the highest in history.
The US is the world’s largest producer and exporter of corn for livestock feed in the world, but corn also plays a major role in our biofuels industry; last year 27% of our corn crop was used to make ethanol, a renewable biofuel. A drop in corn production not only affects agricultural outputs, grain prices and the cost of putting a meal on the table; it also affects the ability to produce a renewable fuel source that is integral to our everyday lives.
The US currently has a mandate called the Renewable Fuel Standard (RFS), which requires that 13.2 billion gallons of ethanol are blended into traditional fuel this year. This standard was created under the Energy Policy Act of 2005 (EPAct), which addressed energy efficiency, renewable energy and other major US energy issues. The RFS is an extremely important piece of legislation because it aims to use ethanol, a domestic product, as a means of reducing greenhouse gas emissions and curbing our dependence on foreign oil. At the moment, the RFS is the most important piece of legislation for the American biofuels industry: without it, refiners would not have to blend biofuels into fuel. However, the recent droughts have caused many to question it.
The fear is that the mandate is putting extreme pressure on the market by increasing the price of corn. This has led to a push to relax the RFS. The United Nations Food and Agricultural Organization (FAO) has called on the US to suspend the use of corn in producing biofuels like ethanol in order to avert a food crisis. 156 House members and 25 Senators sent letters to the Administrator of the Environmental Protection Agency (EPA), Lisa Jackson, demanding she use her waiver authority to water down the RFS mandate. Some of these members of Congress are also trying to pass legislation to force the EPA to weaken the RFS by up to 50%.
While weakening the mandate may bring temporary relief to over-stressed corn crops, the Renewable Fuel Standard is important to the future of renewable energy in the US. The Biotechnology Industry Organization (BIO) says the biofuels industry is just about to hit its stride, as advanced biofuels firms in Florida and Mississippi have received permission to commercially produce and sell their products. A waiver to the RFS may scare away investors, stifling advanced biofuel production.
Weakening the mandate would lower costs to the consumers for fuel and food, but it won’t help the farmers. In fact, it will cut profits for those who still have crops to sell. One of the main reasons that the effects of the drought won’t be as bad as they could have been is that the high corn prices of the last few years – driven by the RFS – gave farmers the certainty they needed to plant a record high amount of corn. A relaxation of the RFS quota would offer temporary reprieve from the price shock pushed by the severe drought. However, we must not lose sight of the goals of reducing dependence on oil and curbing carbon emissions which are the reasons the RFS and other advanced biofuels were initially implemented.
