Severe US drought pressures ethanol, corn-based products

25 July 2012 19:00  [Source: ICIS news]

HOUSTON (ICIS)--The effects of the drought on the US corn crop could result in higher prices for all products derived from corn such as ethanol, corn syrups and sorbitol, a source in the corn-refining industry said on Wednesday.

In an effort to contain that price pressure, some calls have been made for a change in the US Renewable Fuels Standard (RFS) that would lower the mandated production of ethanol.

In the US this year, the ethanol industry is expected to consume 4.9bn bushels of corn from a crop that was projected in May to top 12bn bushels.

On 24 July, Senator Ben Cardin of Maryland introduced legislation that would partially waive the Renewable Fuel Standard for ethanol when corn inventories are low.

"I am introducing this bill because I have grave concerns about the impacts the federal mandate for corn ethanol production is having on the price of food in this country and the cost of domestic food production," Cardin said on the US Senate floor.

“When it comes to the Renewable Fuel Standard for ethanol and other biofuels, now is not the time for changes," said Garry Niemeyer, president of the corn board of the National Corn Growers Association. He made his comments on 19 July.

"The RFS is revitalising rural America, reducing our dependence on foreign fuel and reducing the cost of gasoline. Making changes to the RFS now would only ensure that consumers suffer due to significantly higher fuel prices," Niemeyer said.

“And while it is true that our corn crop is suffering, it’s still in the field. We won’t know the actual size of the 2012 corn crop until months from now. In the meantime, the market is working. All corn users are responding to market signals. Ethanol production and exports are down. In addition, there is currently an ethanol surplus in the United States that will further reduce demand on the 2012 corn crop," said Niemeyer.

In other news, Archer Daniels Midland (ADM) said it will increase prices on all of its industrial ethanol prices by 75 cents/gal (€0.16/litre), effective on 1 August, or as soon as contracts allow, citing a recent increase in US corn prices brought on by drought.

"This price increase is due to the unprecedented increase in the cost of corn, which has skyrocketed by more than 40% since early June, as searing heat and drought conditions in the midwest began to threaten the yields of what should have been a record harvest," ADM said in a letter to its customers.

ADM's price increase was expected, following a 75 cent/gal price increase announcement from ethanol producers Grain Processing Corp (GPC) and MGP Ingredients, which also cited the drought in the US and higher corn prices.

($1 = €0.83)

Additional reporting by Brian Balboa

By: Frank Zaworski
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