American politicians appear ready to end the ethanol subsidy party.
But don’t expect corn prices to immediately plummet as a result. Recent corn futures weakness was tied to better weather in the U.S. Midwest and a general decline in commodities, not ethanol policy.
A $14.4 trillion debt and a $1.38 trillion annual deficit has put American politicians in a cutting mood.
The U.S. Senate and House of Representatives each took the knife to ethanol support last week, but the outcome wasn’t known at theWestern Producer’sdeadline.
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The Senate decisively voted to end the 45-cent-per-gallon blending tax credit the government gives refiners and the 54-cent-per-gallon tariff on imported ethanol. If enacted, the move would save $6 billion a year.
However, the measure was attached to an economic development bill that may not pass and so the ethanol initiative might die. Also, the president has said he would veto legislation repealing all ethanol support.
Meanwhile, the House voted to prevent funding for blender pumps that the ethanol industry wants so gas stations can sell fuel with higher ethanol blend rates.
A motion in the Senate to cut funding for blender pumps failed.
The ethanol industry knew change was coming since December when Congress granted only a one-year extension of the refiners’ tax credit and import tariff.
In exchange for agreeing to end the refiners’ tax credit subsidy early, the industsry wants some of the saved money to support the blender pumps and other less-costly measures.
The industry still benefits from the Renewable Fuel Standard, which requires fuel companies to blend a minimum of 12.6 billion gallons of ethanol with gasoline each year. That grows to 36 billion gallons annually by 2022.
The ethanol industry will use about 40 percent of the U.S. corn crop this year.
The effect of ethanol production on corn prices is hotly debated, but most agree it is partly behind the run-up of corn to historically high levels.
If cutting subsidies caused the ethanol industry to collapse, it would hurt farmers because corn sets the benchmark for other grains and oilseeds. But collapse is unlikely.
A report from investment bank Morgan Stanley says ethanol production is generally profitable even without the subsidy.
The 2008 recession knocked out less profitable smaller producers, and the consolidated industry is now better positioned to survive without subsidies.
