Expiration of ethanol credit could help ease corn prices

By Richard Lobb on 12/22/2011
from www.meatingplace.com (free registration)
reprinted by permission

Corn users could see some softening in prices if the tax credit supporting the ethanol industry – the Volumetric Ethanol Excise Tax Credit (VEETC), the “blenders’ credit” – expires on schedule at the end of the year, according to an economist who follows the ethanol market closely.

“With loss of the VEETC incentive of 45 cents a gallon of ethanol added to motor fuel, we should see demand soften and more price competition among the plants emerge,” said Tom Elam of Farmecon.com. “It’s going to be hard to pin down a number, but something in the range of 20 cents a bushel or somewhat higher is likely.”

Virtually all of the fuel ethanol in this country is distilled from corn. Production of ethanol and by-products is expected to use up 37 percent of the nation’s corn supply in the 2011-12 crop year, according to the U.S. Department of Agriculture.

VEETC can be claimed by fuel companies and others who add ethanol to motor gasoline. The credit nets the fuel industry $500 million per month in 2011, Elam said. Barring last-minute action by Congress as it races towards adjournment for the holiday break, the credit will expire on Dec. 31.

Ethanol distilleries have been running flat-out as blenders seek to make maximum use of the credit before it lapses, Elam said. According to the weekly reports of the U.S. Energy Information Administration, production of ethanol in the last month has been running more than two percent ahead of same period in 2010.

Without the blenders’ credit, the fuel industry will buy only the amount of ethanol mandated by the federal Renewable Fuels Standard, which sets the minimum amount of ethanol and other renewable materials that must be added to motor fuel every year, Elam said.

“While we are currently producing at a rate of more than 14 billion gallons of ethanol per year, the 2012 mandate is 13.2 billion gallons,” he said. “Also, due to the 2011 excess production, the blenders will be able to carry over some credits that they can use to offset 2012 obligations. The effective mandate could be under 13 billion if they use those,” potentially further softening the demand for corn, he said.

More than 70 members of Congress, both Republicans and Democrats, signed a letter to Congressional leaders earlier this month urging them to "allow ethanol subsidies set to expire to do just that and to resist calls to expand or create new ethanol subsidies in the eleventh hour."

The Renewable Fuels Association (RFA), which represents ethanol makers, spent nearly $259,000 in the third quarter on lobbying for extension of the credit among other issues, according to the Associated Press.

Fieldale Farms Recycles for Sustainability and Savings

Recycling catches on when companies see they can save money and improve their brand image as well as contribute to environmental protection and sustainability. That's the message of the cover story in the December issue of Watt PoultryUSA, which I wrote. Located in rural north Georgia, Fieldale had to link up with a management company in Atlanta to make the program work. The dedication of the family-owned company is commendale.

Corn farmers’ incomes soar while poultry producers struggle: USDA report

By Richard Lobb on 12/19/2011
on www.meatingplace.com

Farm income is booming, with crop farms – led by corn – and cattle and hog operations enjoying huge gains while poultry farms are seeing lower pay due to the lagging wholesale price of broilers, according to a report by USDA’s Economic Research Service.

Net farm income in the United States is expected to top $100 billion in 2011, up 28 percent from 2010 and 50 percent higher than the 10-year average for 2001-2010, the report said.

"The U.S. annual corn price is expected to increase from $3.89 per bushel to $6.04, a large increase over its earlier high of $4.66 in 2008, as corn continues to respond to the increased demand for ethanol," said the ERS report.

Federal law requires the fuel industry to utilize a fixed amount of ethanol every year, with corn-based ethanol topping out at 15 billion gallons in 2015. Among commodity types, farms specializing in raising corn are expected to enjoy a 19 percent increase in net cash income in 2011, highest among crop farms.

Other program crops, including wheat, hay and cotton, are also registering "very large gains in annual receipts" in 2011, the report said. Wheat is expected to hit $7.43 per bushel, a 44 percent increase from 2010 and 8 cents-per-bushel below its 2008 average, reflecting a large increase in wheat exports, the report said.

Cattle and hog farms are also having a banner year, while poultry farms are lagging. Farms specializing in cattle should see a 21 percent increase in income in 2011 over 2010, while hog farms should average an 18 percent increase, the report predicted.

"With wholesale prices for most broiler products projected to be below 2010 levels, poultry farms businesses’ average net cash income is forecast to decline 18 percent in 2011, in sharp contrast with other livestock farms," the report said. Poultry companies complain that the high cost of corn has forced them to curtail production.

Government payments make up a significant share of farm income, about 10 percent, the report said. While government payments based on crop prices are expected virtually to disappear in 2011, other payments -- such as conservation easements -- are expected to total $10.6 billion in 2011.