Ethanol debate looks beyond short term gain

Husker Ag is an independently owned ethanol plant near Plainview, Neb. It takes in 27 million bushels of corn and produces 76 million gallons of ethanol each year. (Photo by Grant Gerlock, NET News)
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October 31, 2012 - 6:30am

The drought has prompted a new round of discussion over using corn for food versus fuel. But in this debate the stakes for ethanol and livestock producers go beyond the current dry spell. Livestock producers want to press pause on the federal government’s ethanol mandate to help with high corn prices while ethanol companies are guarding their turf.

On a cold, fall afternoon Josh Alexander overlooks his family’s feedlot near Pilger, Neb. Thousands of cattle make remarkably little noise but still manage to make their presence known.

“Yeah, right,” Alexander said. “The smell of money.”

Alexander runs the day-to-day operations on his family’s 2,000 acre farm and 5,000 head cattle feedlot.

Normally, the Alexander family has grown most of the corn they need for the year in their own fields, but not during the worst drought in decades. To make up the difference, they had to buy corn and hay at a drought-year premium. Overall, the cost of their cattle feed has doubled, and in the current market they would lose money on the animals in the lot.

“Unfortunately,” Alexander said. “But we’re hopefully going to get a rebound in the market.”

Photo by Grant Gerlock, NET News

Josh Alexander stands next to a pile of distillers grain at his family’s feedlot near Pilger, Neb. The drought has doubled the cost to feed his cattle.


Photo by Grant Gerlock, NET News

Steam rises as a load of warm distillers grain is dumped into a truck at the Husker Ag ethanol plant. Nearly all the distillers grain produced by the plant is fed to livestock within a 100-mile radius.


Photo by Grant Gerlock, NET News

Seth Harder is general manager of the Husker Ag ethanol plant. The drought has forced Harder to pull back on ethanol production over the last few months.


 

Next month the Environmental Protection Agency will decide whether to suspend the ethanol mandate in order to bring down high corn prices. The trouble is ag economists, such as Richard Perrin at the University of Nebraska-Lincoln, do not think that would actually work because oil companies now depend on ethanol as a cheap octane boost for gasoline. Changing that would take several months at least.

“No one that I know of thinks by February or March corn would be 50 cents or more cheaper than it would be without a waiver,” Perrin said. “Most expect it won’t have any appreciable impact until many months from now and then when it does the impact would probably be quite small.”

Perrin said a waiver might ultimately save livestock producers a few cents on the price of corn, but not a couple dollars as they might have hoped.

“If that is true let’s waive it and let the ethanol and protein industry compete for a bushel of corn on a level playing field," said J.D. Alexander. Alexander is president of the National Cattlemen’s Beef Association and runs the feedlot near Pilger with his son, Josh.

J.D. said if economists agree suspending the ethanol mandate would make little difference, the EPA should consider eliminating the mandate altogether.

“(The U.S.) cattle herd is at an all-time low in 50 years,” Alexander said. “We’re more than willing to compete, but we don’t think it’s fair for the government to mandate one commodity over another when they have to utilize that much corn.”

While suspending the ethanol mandate temporarily would have a minor impact, Perrin at UNL said taking it away entirely would be more serious.

“And the reason is because today oil is selling for $89 a barrel,” Perrin said. “That’s why we see a lot of ethanol plants shutting down or reducing their throughput right now.”

Fifty miles northwest of the Alexander feedlot at the Husker Ag ethanol plant near Plainview, Neb., general manager Seth Harder does not think food and fuel are in conflict. Husker Ag opened in 2003 and makes 76 million gallons of ethanol per year, although the drought has caused cutbacks.

To Harder, cattle feeders are customers, not corn competitors.

“We are concerned for their livelihoods as well because they are a partner to our business,” Harder said. “They’re a vital piece of it.”

Livestock groups lobby against the ethanol mandate, but local cattle feeders purchase around 450 thousand tons of distillers grain from Husker Ag each year.  Distillers grain is corn fiber and protein leftover after ethanol production. It is high in protein and can replace regular corn in cattle feed.

“We need starch portion, and really the beef need the protein portion,” Harder said. “So it’s kind of a perfect relationship there if you think about it.”

J.D. Alexander uses distillers grain at his own feedlot but feels the arrangement is less than perfect as long as corn prices remain high. Alexander said grocery shoppers will be the next people to notice.

“Cattle producers will continue to raise cattle,” Alexander said. “If we’re going to have a higher price of corn to pay to feed our cattle, poultry, pork and so on, eventually that high price is going to get to the consumer’s table. There’s no way around it.”

The EPA is set to decide by November 13 whether to put the ethanol mandate on hold. That seems unlikely since ethanol has strong support from the Obama administration. Even if the mandate goes on a brief hiatus, the policy is set to continue through the year 2022 and grow along the way, which means this argument is far from over.

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