MARKET DATA, INC. - CURRENT AG ISSUE - ETHANOL AND CORN PRODUCERS UNDER ATTACK - OCTOBER 6, 2011

The Press and Congress have been generally negative on the subject of the ethanol tax credits.

MDI believes that the tax credits will expire at the end of 2011 and the best farmers can hope for is a part of this credit being diverted to subsidizing new gas/ethanol pumps. This would be a big item as it may increase the demand for ethanol in the future by making it more accessible.

Unless the government changes the blending requirements in our fuel, ethanol should not see a major impact from the loss of the tax credit. The lack of the credit does enhance the tie between corn prices and the price of crude oil.

In the September 12th USDA crop report 2011/2012 U.S. Corn demand for ethanol was shown at 5.000 billion bushel which is now the single biggest use of this commodity. Feed use of corn was projected to drop to 4.700 billion bushel. What some forget is that DDG use offsets what historically was grain demand for corn, sorghum, and wheat. DDG's reduce other feed needs by around 30-33% of the amount consumed for ethanol. This would equate to over 1.5 billion bushel according to the September report.

Some of those against ethanol tie their opposition to the higher prices of commodities - especially corn. The amount of acres switching to corn to meet the expanding demand is taking away from other crops - especially wheat - and many would like to see this demand element reduced so that we would be able to reduce overall grain demand and cause excess production so the price of all grains would fall.

On 10-5-2011, some in Congress - Rep. Bob Goodlatte, R-VA. and Jim Costa, D-Calif - both of whom represent states with very LOW corn production levels, came out and sponsored a bill to reduce ethanol use in low corn stocks years. VA is shown to only produce .3 of 1% of the 2011 U.S. Corn crop and CA is at .2 of 1% - click here for details. It is easy to see why they along with those in the Livestock Industry such as the National Cattlemen's Beef Association, National Chicken Council, National Pork Producers Council, the National Turkey Federation and the American Meat Institute - held a press conference to support legislation that is being introduced to reduce or eliminate the volumes of renewable fuel use required by the Renewable Fuels Standard (RFS) based on corn stocks-to-use ratios. They want the mandates lowered when the stocks to use % is below 10% and the September 12th, 2011 report shows them at 5.27% and under their formula this could mean a reduction of over 1 billion bushels of corn demand from ethanol. Other agencies such as ActionAid USA and the Environmental Working Group also support reduction of the mandates due to their assertion that one of the "keys" to global food price volatility is biofuels.

Of course the American Coalition for Ethanol is opposed along with other groups such as the American Farm Bureau Federation, Growth Energy, the National Corn Growers Association, National Farmers Union, National Sorghum Producers, and the Renewable Fuel Association - all of which oppose the bill.

Some studies suggest that the ethanol use has reduced our imported oil needs by 8% from 60% to 52% over the past two years as the ethanol industry has matured. If this is true, MDI believes that most Americans would rather support a domestic industry vs. sending even more dollars overseas. We have a significant part of our military budget that goes into areas of the world where our presence may have been needed to allow oil imports to flow in a fairly smooth manner - does this have to continue forever? MDI is in favor of more energy independence using all domestic resources possible.

It is MDI's hope that Congress and the President will at least allow part of the expiring ethanol tax credit to go to subsidies for expanding the availability of ethanol to the general public so that we can have more energy independence going forward. Let the people decide what fuel they want and if the demand is not there, the price of ethanol will fall and grain demand (and acres) will be shifted to other areas.

It is interesting to see some of the outside reporting finally recognize that direct Ag subsidies are a fairly small part of the total USDA budget with Food and Nutrition comprising over 70% of the total ag budget. Here is a link to one such report. MDI is looking for the direct payments to be cut in half in the next farm bill but hopes that assistance on crop insurance premium costs is not cut too much. You want to see a corn shortage, eliminate crop insurance and have a dry early spring over the heart of the corn belt and see where we end up without this back stop that allows producers (in many cases) to at least be able to get the variable input costs back so they have an incentive to plant a crop in uncertain weather conditions. This is another issue we will address in the coming weeks.