E15 wins broader approval, livestock producers cry foul (fowl?)

(from an article by Tom Webb, St. Paul Pioneer Press)

Opening the door to more ethanol, federal officials said Friday that a 15 percent ethanol blend — dubbed E-15 — can be used safely in all cars and pickup trucks built between 2001 and 2007.

The U.S. Environment Protection Agency ruling, coupled with its earlier approval for newer vehicles, means that all cars built since 2001 have now been cleared to safely use a fuel blend of 15 percent ethanol/85 percent gasoline.

Previously, no more than 10 percent ethanol was deemed safe to use in most engines.

Ethanol boosters cheered the decision, but it rankled many foes. Still, the practical effect is likely to be muted. With one-third of U.S. passenger vehicles still not approved to use a 15 percent ethanol blend, fuel suppliers will be wary of selling E-15 too widely.

“Today’s decision green-lights the use of E-15 for nearly two out of every three cars on the road today and further proves ethanol is a safe, effective fuel choice for American drivers,” said Bob Dinneen, president of the ethanol industry trade association. “EPA continues to move in the right direction with respect to increasing ethanol blends, but challenges still remain.”

But ethanol’s opponents were dismayed, ranging from livestock and food producers to environmentalists and automakers.

Livestock and poultry groups said the decision would lead to even tighter supplies of corn and higher food prices. Minnesota is a leading corn and ethanol producer, but it’s also a major hog-producing state and the nation’s No. 1 turkey producer.

“EPA’s decision completely disregarded significant scientific and economic evidence surrounding E-15 and its potentially disastrous impact,” said National Turkey Federation’s President Joel Brandenberger. “It sends a terrible signal to an already-volatile market at a time when corn supplies are very tight.”

Our Take:
Yes, feed is a major cost for turkey producers. But how much corn goes into producing a pound of turkey? Twenty cents, give or take. If the price of a bushel (56 pounds) of corn rises from $6 to $8, then the incremental cost of that pound of turkey rises six or seven cents per pound.

The livestock producers should push their pencils and remember fuel is also a cost. What Mr. Brandenberger and other critics fail to realize is that we are in the midst of a petroleum fuel price spike (which is setting the floor for all food commodity prices). With our dependence on foreign oil, we can’t have economic growth without oil price spikes. Growing our domestic, farm-based energy industry is one way to change that.

A higher level of ethanol in the transportation fuel supply will temper that price rise and moderate energy costs for turkey and other livestock producers. If it costs the turkey farmer 20 cents per gallon less for the diesel he needs to truck his birds to market, and that benefit is coming from the growing presence of ethanol in the fuel supply then he doesn’t see how ethanol is hitting two birds with one stone–moderating fuel prices and helping keep all farmers profitable.

And the ethanol price effect also helps companies like Hormel who pay a whole lot more for energy than they do for the raw turkey they process. Still, the Big Food companies will likely make a lot of noise about ethanol and raise their retail prices far beyond the incremental increase of their raw farm product ingredients. Why wouldn’t they–it worked last time. Profits at the big food companies set records in 2008 and 2009 while they cried all the way to the bank.

The other thing a rise in commodity corn price will do is signal farmers to grow more corn. If the supply is tight for the moment it will not remain so. In the meantime, savvy livestock producers should buy options and futures to cover their inputs and their own products–that’s what Big Food is doing to limit its price risk. No reason the producers can’t do it too. Ask your University of Minnesota Center for Farm Financial Management to show you how, Mr. Brandenberger.


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