Reuters: Regulatory News: UPDATE 1-Cargill CEO says US needs to address ethanol mandate

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UPDATE 1-Cargill CEO says US needs to address ethanol mandate Jul 31st 2012, 17:38 Tue Jul 31, 2012 1:38pm EDT * Cargill chief cites Brazil in urging ethanol flexibility * Comments follow livestock firms' request July 31 (Reuters) - The chief executive of global grains trading powerhouse Cargill lent his voice on Tuesday to a growing chorus of corn consumers urging the U.S. government to temporarily curb its ethanol quotas, saying that the expected drop in global corn production was "manageable" with the right response. CEO Gregory Page said on CNBC that the U.S. biofuel mandate "needs to be addressed" through existing policy tools, becoming the highest-profile executive to call for some relief from the Renewable Fuels Standard that requires that over a third of the corn crop is made into fuel ethanol. With the global corn crop expected to fall about 3 to 4 percent below trendline norms as the worst drought in over half a century decimates the U.S. harvest, anyone who consumes corn will be forced to begin cutting back, Page said. "If all of that (demand rationing) is only on livestock or food consumers, it really makes the burden disproportionate. What we see are 3 or 4 percent declines in supply lead to 40 to 50 percent increases in prices, and I think the mandates are what drives that price elasticity which I think needs to be addressed," he said on the business news channel. "There are mechanisms in place for a combination of agencies, there are some controls. There is a methodology to reduce the amount of biofuels that is mandated in the U.S." FORMAL REQUEST AWAITED The worst U.S. drought in more than half a century has reduced the corn crop by as much as a quarter compared to spring forecasts, and has renewed the debate over a federal policy to use a growing amount of corn as motor fuel. On Monday, U.S. livestock groups appealed to the Environmental Protection Agency (EPA) to curb or suspend the mandate that requires 9 percent of the U.S. gasoline supply to be made up of ethanol for the coming year. But the request appeared to be only an informal plea, as analysts said only an ethanol blender or producer -- or a U.S. state -- could formally seek a waiver from the program. The EPA denied a previous waiver from Texas Governor Rick Perry in 2008 on the basis that the mandate was not causing "severe" harm. Page cited the example of Brazil, a long-time proponent and user of sugar-based ethanol, which has periodically adjusted the volume of ethanol that must be blended into gasoline at times when the sugar harvest faces a shortage. ON ALL SIDES The spike in corn prices, which have rallied more than 50 percent in two months, threatens to cut into margins across Cargill's vast $120 billion global business, from its feed-grain sales to meat processing to ethanol output. It is a top 10 ethanol producer with about 215 million gallons a year. However the Minneapolis-based firm's ethanol business is less than one-eighth the size of industry leader Archer Daniels Midland Co, which on Tuesday reported a worse than expected 25 percent drop in quarterly earnings due to a slump in immediate ethanol margins caused by tight corn stocks. Cargill, which reports its earnings on Aug. 9, could be hurt by the drop in business levels as their commercial hedgers such as livestock producers will hedge less as they buy less product. "When you have fewer crops to process as livestock producers feed less, they're going to need less soybean meal and therefore there will be less demand for the facilities like ADM and Cargill provide," Page said. MANAGEABLE Page said the shortfall in supply would be "manageable" provided that consumers ration their use, that producers don't impose export constraints and importers don't embark on a panicked buying spree, as some did in 2008 -- a beggar-thy-neighbor approach widely seen to have worsened the price spike. "We need thoughtful responses from governments. We need to be sure free trade remains. In past periods of shortage of crops, we've had embargoes which have exacerbated peoples' supply concerns and caused people to take actions that were not helpful to global aggregate food security," he said. "Supply countries embargoed exports and importing countries were buying more than they actually needed. The combination of these actions by governments exacerbated the shortfall and accelerated prices increases," he said. The average American will be paying about $75 more for their food consumption on an annual basis compared with a year ago, he said. The average person in the United States consumes about one tonne of grains per year. "If you're a family of four on a tight budget, it's not inconsequential, but to put it in context that is $75 per man compared with levels we saw a year ago," he said. Link this Share this Digg this Email Reprints

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