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Changes to US Ethanol Fuel Policies Unlikely

24 August 2012

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US - An agricultural economist with the University of Missouri says the US government appears unlikely to alter its ethanol fuel policies to ward off anticipated shortages of feed grains in the wake of reduced corn production due to drought.

Although US farmers seeded the largest number of acres to corn this year since 1937, since mid-June corn prices have been on the rise to the point where they've hit record levels well above $8 per bushel in recent days fueled by concerns over drought.

The reduced availability of feed grains has prompted calls for Washington to re-think policies that encourage the use of ethanol fuel blends.

Dr Ron Plain, an agricultural economics professor with the University of Missouri, says that appears unlikely.

Dr Ron Plain-University of Missouri :

We're using close to 40 per cent of our corn crop to make ethanol.

That tightens up the supply for everything else and contributes to these high feed costs for the livestock industry and the cattle and the hog industry has said that reducing ethanol production would free up some feed and help the economics of the livestock industry and therefore help consumer food costs down the road.

We have a mandate in the United States on a minimum amount of ethanol that has to be produced for motor fuel.

So far, little indication that the government is planning to waive that and I don't expect them to.

That's one potential avenue that might give us some price relief on feed costs but it doesn't look like it's a very high probability.
Dr Plain notes, since the beginning of July, we've seen a slow reduction of the US sow herd and, given the outlook for feed costs and hog prices, that's probably going to continue, the dairy cow slaughter is up quite dramatically from a year ago and he expects a big jump in the beef cow slaughter this fall after the spring calf crop is weaned.

He says another key factor will be corn exports and because of the high prices, the US Department of Agriculture expects corn exports to decline.

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