US corn forecast puts squeeze on renewable fuel standard

10 August 2012 18:13  [Source: ICIS news]

HOUSTON (ICIS)--The US corn ethanol industry on Friday maintained the nation should not drop its renewable fuels standard despite a new government forecast of the lowest crop harvest since 2006 as a result of drought.

The US Department of Agriculture (USDA) on Friday said corn production is forecast at 10.8bn bushels, down 13% from 2011 and the lowest production since 2006.

“Based on conditions as of August 1, yields are expected to average 123.4 bushels per acre, down 23.8 bushels from 2011,” according to the USDA crop forecast. “If realised, this will be the lowest average yield since 1995.”

The latest report comes amid the worst US drought in decades.

“Heat and drought [in July] devastated pastures and summer crops in a broad area covering the nation’s heartland, including large sections of the plains, midwest, and mid-south,” the USDA said.

“In the hardest-hit areas, July rainfall totalled less than 50% of normal - with a few locations receiving no measurable precipitation,” the USDA continued. “As a result, corn and soybean conditions fell to levels comparable to those observed at the height of the historic 1988 drought.”

But a corn ethanol industry trade group said the grim tidings do not justify a waiver of the nation’s renewable fuels mandate for the rest of the year.

“Given the abundance of RFS [Renewable Fuels Standard] credits, ample ethanol stocks, and various other flexibilities, obligated parties under the RFS will have every opportunity to demonstrate compliance this year,” the Renewable Fuels Association (RFA) said.

“Moving forward, the market remains the best option for rationing corn demand,” the trade group continued.

The RFS has come under increasing pressure as a result of the drought.

More than 150 Republican and Democrat members of Congress have urged the Environmental Protection Agency (EPA) to ease its mandate for US consumption of corn ethanol, saying the requirement is aggravating food prices.

The 2012 RFS mandate requires US refiners to blend 15.2m gallons of corn ethanol into the nation's gasoline supply. 

More pressure was added on Friday when Jose Graziano da Silva, the UN director-general of the Food and Agricultural Organization, said the US should lower or suspend its renewable fuels mandate to “give some respite to the market and allow more of the crop to be channelled towards food and feed uses”.

He made his comments in an opinion piece in the Financial Times.

The Global Renewable Fuels Alliance responded that “any action to reduce or eliminate the RFS would be premature and have immediate consequences in lost jobs and an increased reliance on crude oil imports,” adding “The flexibility of the RFS and the market are the most effective way of reducing demand for corn during these difficult times.”

By: Brian Ford
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