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December 12, 2013

Midwest Farmers Concerned With EPA Changes to Ethanol Standards

by Kane Farabaugh

In November, the Environmental Protection Agency proposed lowering the mandated amount of ethanol mixture in the nation’s gasoline supply.  Current law requires refiners to use 68 billion liters of ethanol by 2014.  The proposed changes would cut that requirement to about 56 billion liters.  Farmers in the midwestern United States who produce corn used to make ethanol say the proposed changes could hurt them financially.

It's a prosperous year in the cornfields of Polo, Illinois, for farmer Brian Duncan.

“This year we had record yields, and a huge crop," said Duncan.

It is a similar story across the country…farmers coming off one of the worst years on record because of last year’s drought now face some of the best yields in recent memory.

That, however, is where Duncan says the good news ends.

“As we look at the increased bushels, our inventories are gonna be worth $3 a bushel less than what they were valued at a year ago," he said.

As the sun sets each day on Duncan’s golden harvest, the price of corn continues to decline, from an all time high of more than $7 a bushel set during the peak of the drought last year.

"Four-dollar corn in this environment is tough enough, let alone $2.50 or $2.75 corn, which is what we could be looking at with another big crop, which is why we needed higher blend rates of ethanol," he said.

Demand for ethanol, a liquid fuel created from corn, grew in 2007 when the Renewable Fuel Standard, or RFS, was put in place.  The RFS mandated that fuel makers blend ethanol into their gasoline, with the amount increasing over time.  That was good news for corn producers like Duncan, who saw a steady increase in demand for their product... and its price.  Times, however, are changing, says GrainAnalyst.com contributing editor Craig Turner.

“We’ve hit the blend wall.  Since 2008, the United States consumes about 9 percent less gasoline than we used to.  We can only use 10 percent of ethanol in a gallon of gasoline [before it harms some engines], and we basically hit that wall.  So we can’t produce any more ethanol; we have to stay the same, and if fuel efficiency gets even better, then the ethanol mandate could come down even further," said Turner.

Turner says one ironic factor driving down demand for ethanol is the growing number of fuel-efficient vehicles on the road.

“Every year we take older cars off the road and replace them with more fuel-efficient cars, we’re going to be using less gasoline, so now that we’ve reached this peak in corn ethanol it’s actually hurting farmers," he said.

That's certainly not the scenario farmer Brian Duncan was banking on.

“We’re happy for the market, but we have ever increasing yields, and ever increasing production capabilities, for ethanol, and we were kind of planning on the EPA following through with their increase and inclusion of green fuels," he said.

The biggest uncertainty for farmers used to be the weather. But with changing ethanol standards, falling corn prices, and the lack of action in the U.S. Congress on a new farm bill, the weather seems to be the least uncertain obstacle Brian Duncan and other U.S. farmers face in the new year.