USDA lowers corn crop slightly on drought as battle over RFS comes to a head

Source: Amanda Peterka, E&E reporter • Posted: Friday, October 12, 2012

The Agriculture Department today lowered its projections of this year’s corn harvest slightly to 10.7 billion bushels, down from 10.75 billion predicted last month.

In its latest monthly crop projections, the agency said this year’s crop remains the smallest in six years, down 13 percent from last year, and average yields stand at 122 bushels per acre, down 25.2 bushels from the average harvested in 2011. Overall harvested acres, though, showed a slight increase from forecasts last year and last month.

The monthly report released today coincides with the ending of the public comment period on several requests for U.S. EPA to waive the federal corn ethanol mandate set down in the renewable fuel standard. Livestock producers have said the standard, coupled with the drought and decreased corn yields, is raising the price of corn that goes into livestock feed.

Ethanol industry supporters said USDA projections did not change their message to EPA to maintain the standard.

“Globally we’re still looking at the second largest grain crop in history, the second largest corn crop in history,” said Bob Dinneen, president and CEO of the Renewable Fuels Association. “I do believe strongly that the conditions for granting a waiver do not exist. I don’t believe that the petitioners have demonstrated that there’s severe harm here.”

The report comes as the swath of the United States experiencing drought conditions shrank a percentage point this week to 53 percent, but conditions got worse in the hardest-hit regions.

Drought conditions expanded or intensified in South Dakota, Wisconsin and Minnesota, while Colorado, Indiana and Illinois all showed improvement, according to the latest U.S. Drought Monitor released this morning.

Nebraska and Kansas, the states with the largest areas of exceptional drought, showed little change. Recently planted winter crops there are already feeling the effects of the drought, the monitor reported. Kansas winter wheat was 65 percent planted as of Sunday — ahead of the norm — but 25 percent emerged, which is below average. In Nebraska, less than a third of winter wheat fields are reported as emerged, 12 days behind usual.

Below-normal temperatures may have helped to reduce evaporation in South Dakota, but with little rain, regions of the state experiencing extreme and severe drought expanded. Severe drought now covers nearly every county in the state.

Overall, 33 percent of the country is in severe drought or worse, and 17 percent is in extreme drought or worse, each category down less than a percentage point from where it was last week.

Livestock producers this week said they continue to face the repercussions from the drought.

In the beef industry, where it takes 60 to 70 bushels of corn to finish a steer or a heifer, the last step before the cows are slaughtered, high corn prices translate to higher costs for the producer, said Kevin Good, a senior analyst at CattleFax.

The drought conditions are “still affecting us, and it will until we get into a year when we get a normal corn crop,” Good said. “Corn values into 2013 could very well average a dollar higher than a year ago.”

Beef and dairy producers are continuing to cull their herds, though at a lower rate than after last year’s drought, which hit beef regions hard in the Southwest.

The decreased herds will translate to higher meat prices in the grocery store, Good said. The effects will likely be seen in the poultry industry first, he said, which typically starts to liquidate its animals sooner because a greater percentage of poultry feed — about 70 percent — consists of corn.

The pork industry, which also relies on corn for feed, is also facing large losses. Producers “shifted to a liquidation mode” in late July and August, according to Purdue University agricultural economist Chris Hurt, and by early last month had slaughtered 74,000 pigs, a decrease of 1.3 percent relative to the inventory in June. September slaughter was up 4 percent.

The monetary losses for the pork industry are expected to be about $1 billion over the past six months, and there is not yet an end to the damage, according to Hurt.

“Pork producers are expected to suffer very large losses in the next six months after already operating in the red for the last six months,” Hurt said in a recent blog post. “These large losses have been brought on by the extreme feed prices due to drought.”

Livestock producers have blamed the renewable fuel standard, which this year mandates 13.2 billion gallons of traditional ethanol production, for their woes.

Today, the poultry industry highlighted a Purdue study that found a waiver of the corn ethanol part of the standard could reduce the price of corn by more than $2 a bushel. That reduction would save the broiler industry, which produces chickens for meat, $2.5 billion a year, the National Chicken Council said.

The council today said it delivered nearly 10,000 comments from individual chicken producers to EPA, urging the agency to grant a waiver.

“A California poultry company just this week filed for bankruptcy citing rising feed costs, making it the eighth company in the last two years to file for bankruptcy, be sold or simply close its doors,” NCC President Mike Brown said today in a statement. “How many more jobs and family farms have to be lost before we change this misguided policy and create a level playing field on the free market for the end users of corn?”

In response, ethanol producers point to several recent studies that found a waiver of the corn ethanol requirements in the renewable fuel standard would not significantly or immediately reduce corn prices.

“The flexibility built into the RFS are allowing the marketplace to respond,” Dinneen of the Renewable Fuels Association said. “I don’t believe that EPA, which has set a very high bar [for a waiver], will see that the conditions have been met with this circumstance.”

The fact that the corn crop remains the eighth-largest in U.S. history is a “testament” to American farmers’ productivity, he added.

It could be worse, said Craig Lang, a dairy farmer in Iowa who also has about 1,400 crop acres, a portion of which are corn. He described his corn crop as “average,” despite the lack of rain over the summer.

In other major drought years, such as 1988, “We wouldn’t have a crop because genetics are so superior today with the need of less water, and the corn protects itself for insects,” said Lang, a past president of the Iowa Farm Bureau. “We would have had a total wipeout in 1988.”