Reuters: Regulatory News: UPDATE 2-Two states ask US to forgo use of corn ethanol in fuel

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UPDATE 2-Two states ask US to forgo use of corn ethanol in fuel Aug 10th 2012, 21:59 Fri Aug 10, 2012 5:59pm EDT * Food vs fuel fight three months before election * US sees mild food inflation despite drought * But university analyst says meat up 8 pct in 2013 * EPA rejected ethanol waiver in 2008 price spike By Charles Abbott WASHINGTON, Aug 10 (Reuters) - The governors of two poultry-growing states asked the Obama administration on Friday for relief from the requirement to use corn ethanol in gasoline, saying the grain is needed to feed livestock used to feed people. In a letter, the governors of Maryland and Delaware asked the Environmental Protection Agency for relief from record-high corn prices through a whole or partial waiver of the so-called ethanol mandate. Formally named the Renewable Fuels Standard (RFS), it guarantees biofuels a share of the gasoline market. Consumers will face higher food costs or the poultry industry will be hit with ruinously high feed bills unless there is a waiver, wrote Governors Jack Markell of Delaware and Martin O'Malley of Maryland. They said thousands of jobs were at stake in their U.S. East Coast states, a ripple effect of drought in the Farm Belt hundreds of miles away. With the U.S. general election three months away, the governors said the ethanol mandate would create severe economic harm, the trigger for a waiver. The EPA rejected a waiver in 2008 on grounds that high grain prices were not enough reason. EPA would judge a new waiver request by stringent standards, including the degree of harm and whether a suspension would bring benefits, said analyst Mark McMinimy of Guggenheim Partners. Some researchers say blenders will continue to mix ethanol into gasoline even if there is a waiver because biofuels cost less and boost octane. Bruce Babcock at Iowa State University says corn prices would decline by 5 percent in a waiver, providing less relief than livestock producers seek. The Agriculture Department forecasts U.S. food price inflation of 3 percent this year and 3.5 percent next year, fairly low rates but well above the overall inflation rate. Meat, dairy, and poultry prices, which account for roughly 20 cents of the food dollar, could climb by 8 percent in 2013 because of high feed prices, said a University of Missouri researcher. That would be double the rise forecast by USDA. Forty percent of the U.S. corn crop is used in making fuel ethanol. The ethanol industry says output is dropping because of high corn prices, so there is no need for EPA action. Gasoline blenders also have around 2.5 billion credits they can use toward meeting this year's target of using 13.2 billion gallons of biofuels. The target rises to 15 billion gallons in 2015. Ethanol is popular in the U.S. Midwest and Plains as a home-grown fuel that creates rural jobs and bolsters grain prices. Livestock producers say ethanol drives up feed costs and limits meat production. The Obama administration and its Republican predecessor stood by the ethanol mandate in the past. At least one U.S. farm group saw signs of continuing support on Friday, when USDA lowered its corn estimate sharply because of hot, dry weather. An array of groups, from the charity Oxfam to the U.N. Food and Agriculture Organization have criticized use of grain to make fuel and urged the United States to change its policies. USDA said the worst drought in half a century would result in 13 percent shrinkage in the corn harvest versus than last year. It said the new crop would sell for $2 a bushel more than the record price fetched by the 2011 crop. Asked whether President Barack Obama was considering an exemption to the ethanol requirement, White House Spokesman Jay Carney told reporters, "The EPA, in consultation with the Department of Agriculture, is looking at this. I don't have a statement one way or the other predicting what the experts are going to say. "There's no question that the drought is very serious, and the president is committed to ensuring that his administration is taking every step possible to help farmers and ranchers who have been affected by this disaster," Carney said, describing steps already taken, including providing emergency loans and opening lands for hay production and grazing. Since July, USDA has cuts its forecast of meat production in 2013 by 2 percent, calculating that high feed prices will discourage growers. Per capita consumption would drop by 5 lbs from this year, if the forecast is accurate. Link this Share this Digg this Email Reprints

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