Cut in biofuel mandate could trigger crisis, Branstad warns

Source: Written by Donnelle Eller, Des Moines Register • Posted: Monday, December 9, 2013

Gov. Terry Branstad told Washington, D.C., leaders last week that it could potentially pull Iowa into another farm crisis.

Iowa, the nation’s largest producer of ethanol and biodiesel, “will be one of the hardest hit by this proposal,” Branstad said during a hearing on the renewable fuels blending mandate.

Monte Shaw, executive director of the Iowa Renewable Fuels Association, agrees.

National corn growers raised a record 14 billion bushels this year. That was without the best yields from Iowa, the nation’s No. 1 corn producer. Too much rain and heat scaled back Iowa corn yields.

With 147 million more acres pulled into crop production worldwide, Shaw worries what would happen with even greater yields.

“We’ll be swimming in corn,” Shaw said. “Supply will be dialing up, but demand from ethanol will not.”

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Economists say reducing the renewable fuels mandate could shave 10 cents to 25 cents from corn prices, already below production costs.

“When you think back about what has been a major driver of high farm incomes over the past few years, it’s been increasing demand for crops,” said Chad Hart, an Iowa State University agriculture economist. “A fair amount of that was related to growth in biofuels.

“With that in jeopardy, it’s going to help bring incomes down and bring more uncertainty about where those incomes will stabilize,” Hart said.

Michael Boehlje, agriculture economist at Purdue University, believes that corn and soybean prices will fall but plateau. “Export demand won’t decline dramatically, and ethanol demand won’t collapse,” he said.

Hart, too, sees strong demand for corn in export markets, including China, which in the past has resisted importing corn

“We’re seeing demand rebound,” he said, but he’s uncertain whether that will happen quickly enough to help Iowa farmers struggling with losses.