The U.S. ethanol industry is bracing itself for the possible elimination of its main subsidy.
If that happens, says an agricultural think-tank, corn stocks would grow and drag down grain prices,
U.S. Congress passed a bill late last year giving the ethanol industry a one-year extension on its Volumetric Ethanol Excise Tax Credit (VEETC), a 45 cents per gallon blending subsidy.
Getting the extension was a tough fight at a time when the U.S. deficit is soaring.
There is now mounting fear in the ethanol and corn industries that they’ve seen the last of the $6 billion annual subsidy program.
Read Also
Volunteers help exotic animal farm rebuild
Exotic animal farm loses beloved camel and pony to huge hail storm that gripped the Brooks, Alta. area as a community member starts a fundraiser to help the family recover from the financial and emotional damage.
The University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI) has prepared a U.S. corn supply and disposition report based on the assumption the government won’t renew the subsidy at the end of this year.
According to the institute, losing the subsidy would reduce corn demand from the ethanol industry and increase ending stocks. This is significant because corn influences many grain and oilseed prices.
The institute is forecasting ending stocks of 31.68 million tonnes in 2011-12, which is 44 percent higher than the U.S. Department of Agriculture’s 21.97 million tonne prediction. The difference stems from the institute’s lower ethanol and export demand numbers.
The institute’s more generous ending stocks would provide the supply-constrained corn industry with more breathing room in the coming crop year, but it’s still an asthmatic outlook.
“Even with the kind of stocks we’re reporting, it’s still a pretty tight stocks situation, just not as tight as we are in the current year,” said institute director Pat Westhoff.
Corn prices would ease somewhat, but they wouldn’t tumble under the institute scenario. It sees a season average farmgate price of $5.03 per bushel in 2011-12, down from its forecast of $5.32 in 2010-11.
“We project continued pretty high prices,” Westhoff said.
Recent events suggest the ethanol subsidy might be in jeopardy.
U.S. senators Ben Cardin and Tom Coburn introduced legislation March 9 that would eliminate the tax credit.
The bill has the support of a broad coalition of livestock groups, environmental organizations, grocery manufacturers and tax groups.
The senators note that the U.S. Government Accountability Office said in a recent report that the tax credit is “largely unneeded today to ensure demand for domestic ethanol production.”
A similar bill was tabled a day later by senators Dianne Feinstein and Jim Webb. Coburn followed up his bill by proposing an amendment to the small business reauthorization bill now under consideration by the Senate that would immediately repeal the VEETC tax incentive.
U.S. Renewable Fuels Association president Bob Dinneen didn’t sound hopeful about the future of the subsidy in his annual state of the ethanol industry address delivered Feb. 21.
“Congress does appear ready to end the ethanol tax incentive program. At least, end it in its current form and cost,” he said.
Growth Energy, another ethanol lobby group, has proposed redirecting the VEETC subsidy into ethanol infrastructure programs.
The National Corn Growers Association recently passed a resolution supporting reform of ethanol tax policy that would see the credit changed to a variable or reduced rate.
“Not quite as high as USDA’s current projections, not quite as high as our futures markets, but definitely
