The worst U.S. drought in half a century has fueled a 50 percent surge in corn prices to a record of more than $8 a bushel, heightening fears of a food crisis. Even as the crop wilts, the farm economy has rarely looked healthier thanks to high property prices, widespread accessibility to insurance and a four-year commodity boom.
And a renaissance in domestic oil output in North Dakota and Texas is eating into dependence on foreign crude. Supporters of motor fuel made from U.S. grain have long used the foreign oil addiction as an argument for the Bush-era mandate, known as the Renewable Fuels Standard, or RFS.
Poultry, beef and pork producers complain the RFS, which requires petroleum blenders to use 13.2 billion gallons of corn ethanol this year or face fines, is also behind the rise in corn prices.
And a renaissance in domestic oil output in North Dakota and Texas is eating into dependence on foreign crude. Supporters of motor fuel made from U.S. grain have long used the foreign oil addiction as an argument for the Bush-era mandate, known as the Renewable Fuels Standard, or RFS.
Poultry, beef and pork producers complain the RFS, which requires petroleum blenders to use 13.2 billion gallons of corn ethanol this year or face fines, is also behind the rise in corn prices.
The higher corn prices go the more it boosts prices for one of their top expesnses: animal feed. So the industries are pushing the Environmental Protection Agency to waive the mandate this year.
But even with growing numbers of Midwestern counties declared disaster areas by the government, no ethanol opponent can yet make the case the EPA has said is necessary to grant a waiver: that implementing the mandate itself is causing "severe harm" to the economy of a state, region, or the country.
"Severe economic damage is a very high bar," said Mark McMinimy, a senior policy analyst at Guggenheim Washington Research Group, part of a financial services company.
Texas Governor Rick Perry discovered that for himself in 2008 when drought boosted grain prices and the meat industries pushed him to petition the EPA to waive the mandate. The agency turned him down, emphasizing that future petitions would have to demonstrate implementation of the mandate itself was causing the economic harm, not just contributing to it.
"I really don't see at this point what basis the administration would use to issue a waiver," McMinimy said.
U.S. Agriculture Secretary Tom Vilsack told a press conference at the White House on Wednesday the drought will spike crop prices. He also said beef and pork prices might rise late this year after rising in the short-term as ranchers and poultry farmers shrink herds and cull flocks.
But he also reiterated his agency's prediction last week that the corn crop could still be the third largest on record due to wider than normal plantings across the country this year.
In 2007 George W. Bush signed the RFS into law. It required 9 billion gallons of ethanol from corn in 2008, when Perry asked for the waiver. In 2015, the mandate peaks at 15 billion gallons requiring that level through 2022.
The mandate -- run by the EPA under the Clean Air Act -- was also embraced by President Barack Obama even before he hit the campaign trail for re-election and pushed an "all of the above" strategy on energy. Obama's blueprint lays out a future for oil, natural gas and wind and solar, but also for biofuels including ethanol made from corn.
Three of the swing states in the election, Ohio, Michigan, and Iowa, are top corn growing states, where voters might be dismayed by a move to take an important market for the grain off the table.
It is highly unlikely the mandate will be removed with these crucial swing states in play.
There is no doubt the severity of the drought has driven corn prices higher. This in turn lifts ethanol producers cost higher, resulting in higher ethanol prices and ulitmately higher ethanol blended gas prices higher.
But even with growing numbers of Midwestern counties declared disaster areas by the government, no ethanol opponent can yet make the case the EPA has said is necessary to grant a waiver: that implementing the mandate itself is causing "severe harm" to the economy of a state, region, or the country.
"Severe economic damage is a very high bar," said Mark McMinimy, a senior policy analyst at Guggenheim Washington Research Group, part of a financial services company.
Texas Governor Rick Perry discovered that for himself in 2008 when drought boosted grain prices and the meat industries pushed him to petition the EPA to waive the mandate. The agency turned him down, emphasizing that future petitions would have to demonstrate implementation of the mandate itself was causing the economic harm, not just contributing to it.
"I really don't see at this point what basis the administration would use to issue a waiver," McMinimy said.
U.S. Agriculture Secretary Tom Vilsack told a press conference at the White House on Wednesday the drought will spike crop prices. He also said beef and pork prices might rise late this year after rising in the short-term as ranchers and poultry farmers shrink herds and cull flocks.
But he also reiterated his agency's prediction last week that the corn crop could still be the third largest on record due to wider than normal plantings across the country this year.
In 2007 George W. Bush signed the RFS into law. It required 9 billion gallons of ethanol from corn in 2008, when Perry asked for the waiver. In 2015, the mandate peaks at 15 billion gallons requiring that level through 2022.
The mandate -- run by the EPA under the Clean Air Act -- was also embraced by President Barack Obama even before he hit the campaign trail for re-election and pushed an "all of the above" strategy on energy. Obama's blueprint lays out a future for oil, natural gas and wind and solar, but also for biofuels including ethanol made from corn.
Three of the swing states in the election, Ohio, Michigan, and Iowa, are top corn growing states, where voters might be dismayed by a move to take an important market for the grain off the table.
It is highly unlikely the mandate will be removed with these crucial swing states in play.
There is no doubt the severity of the drought has driven corn prices higher. This in turn lifts ethanol producers cost higher, resulting in higher ethanol prices and ulitmately higher ethanol blended gas prices higher.
The right thing to do is to relax the ethanol mandate immediately. However, it is doubtful any reduction in the mandate will come before the November Presidential elections.
Congratulations to all ethanol blenders who locked in large negative ethanol differentials to RBOB on their contracts earlier in the year!
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