CHICAGO — American ethanol producers are about to lose a lucrative subsidy, but a grain analyst says it shouldn’t have a long-lasting negative affect on corn prices.
“The blender’s credit, barring some unforeseen miracle, it really does end at the end of this year,” Chris Clayton, DTN’s farm policy editor, told delegates attending DTN’s Ag Summit.
The U.S. Senate signalled its intentions earlier this summer when it voted 72-20 to end the 45 cents US per gallon tax credit and the punitive tariff on imported Brazilian sugar cane ethanol.
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There appears to be no appetite in Washington to continue with the credit beyond Dec. 31 or divert those funds into ethanol infrastructure projects as requested by big U.S. ethanol manufacturers.
The U.S. biodiesel industry nearly collapsed in 2010 when there was a year long delay in renewing its $1 per gallon blender’s tax credit.
DTN senior market analyst Darin Newsom doesn’t expect the same thing will happen to the corn ethanol sector.
“The ethanol market is bigger, older and stronger. It has had time to establish itself and it has the mandate,” he said.
He thinks there will be no long-term consequences for the corn market if the tax credit disappears, although there could be a temporary knee-jerk market reaction to the news.
“We could see a spike lower because of the fear, but I think we’re already working that way anyway,” said Newsom.
“It’s only if the mandate goes away that the corn market is going to see a long-term effect on price.”
Clayton said there is mounting pressure to do away with the mandate.
“It’s going to be an annual battle, non-stop.”
He said he recently spoke to a senior executive with Poet, America’s largest ethanol producer, who thinks Congress is not ready to go down that road.
However, the same executive said rising food prices could pull together an old coalition of the petroleum industry, cattle producers, grocery stores and environmental groups that oppose ethanol. They will push for an end to the mandate.
There is already proposed legislation that would cut the ethanol mandate by 25 percent in years when the corn stocks-to-use ratio is projected to be less than seven percent. That would reduce ethanol production by 4.5 million gallons.
However, the bill has had trouble gathering momentum in Washington. It has 30 co-sponsors in Congress, which isn’t a lot, although they include both Democrats and Republicans.
What concerns Clayton is that Illinois and Iowa will each lose one congressman and Ohio will lose two after the 2012 U.S. elections, while Texas will gain four and Florida will add two. The changes reflect population trends.
“The Midwest, the corn belt states, lose a little more influence in Congress,” he said.
That will make it easier for the anti-ethanol coalition to get its way in Washington.
