The ethanol world had a big shake up the other week when EPA announced a reduction in the renewable fuels standard. How much ethanol that will be required to be blended into gasoline is proposed to be dropped around 3 billion gallons from the 2007 goal of 18.15 to 15.21 billion gallons. Major news outlets picked up the story pretty quickly which tells you the importance of the potential implications beyond the farmyard. Reluctance by fuel manufacturers to blend ethanol above a certain level along with declining fuel use means they’ve hit a “blend wall”. This could mean trouble for crop farmers relying on ethanol production as a market for corn to keep prices up.
My Twitter and Facebook feeds saw an awful lot of chatter about this and its potential effects on crop markets. Notice I didn’t say corn markets even though that’s the major crop used for ethanol production? That’s because all the different crops we grow in this country including the forages and grains I feed the animals on my farm are constantly competing with one another for acreage. If one crop is worth more, others have to follow or they won’t get planted and corn has been leading the charge lately. It would be hard to make a case that the number of bushels of corn going to making fuel for our cars hasn’t had an effect on the prices and availability of feed for my animals. This graph from a Congressional Research Service report shows the increase in use of corn produced for ethanol.
While I feel bad for my crop growing friends who may be seeing an end to what have been some of the most profitable times in recent history, I’m looking forward to livestock farmers having a chance at a decent year of profits which have been hard to come by lately. Hay prices which are a major portion of the ration for our dairy cattle have gone from $130/ton 3 years ago for good quality hay to $230/ton for the same quality today. There has been a considerable amount of hay ground turned into corn ground in the past 5 years and I have a hard time believing that ethanol played no role in that. I was a supporter of ethanol in the beginning, believing what was good for some farmers would be good for all farmers in time and I’m still not entirely convinced that isn’t true. With the increases in crop prices meat and milk prices have followed which means there’s a lot more dollars flowing into agriculture as a whole. The increase in feed costs, despite higher prices for meat and milk, means margins have remained slim for livestock farmers especially those who don’t grow all their own feed.
Where will things go from here? I don’t know, to be honest, and if I did know I’d be a billionaire hedge fund manager by now. Personally I look forward to being able to find more farmers to work with that will be willing to plant hay and non-GMO crops for my livestock with a willingness to do a multiyear contract that will ensure we both make a decent living. I doubt the renewable fuels industry will go away and I hope it doesn’t as I feel it’s part of the solution to our energy and climate problems but it may have just grew too fast for our own good.