How Ethanol Policies Impact Corn Price

If the federal government did away with support programs for ethanol production, the price of corn would decline more than 13%. That’s one conclusion drawn by

If the federal government did away with support programs for ethanol production, the price of corn would decline more than 13%. That’s one conclusion drawn by analysts at the University of Missouri’s Food and Agriculture Policy Institute (FAPRI).

Current ethanol price supports and subsidies include the blender’s tax credit, tariffs on imported ethanol, and the Renewable Fuels Standard (RFS). RFS stipulates how much annual ethanol production must come from grain.

FAPRI analysts did the math recently for several members of Congress, who wanted help in evaluating the glut of alternative policies being proposed. These proposals include:

  • Allowing the tariff and blender’s tax credit to expire.

  • Replacing the static tariff and blender’s tax credit with counter-cyclical rates by which support would be less as corn prices increase.

  • Delaying the implementation rate of RFS.
According to FAPRI analysts, each scenario conjured its own result, but assembling a trend, their basic conclusions were:
  1. If Congress allows either the blender’s credit or ethanol tariff to expire next year, there will be less ethanol produced and corn prices will decline marginally over the period of 2011-2018.

  2. Any downward change in the RFS curtails ethanol production and reduces corn prices. An elimination of the federal policy would depress corn prices nearly 5%.

  3. The removal of one ethanol support policy has marginal impact, but the elimination of all three policies would curtail ethanol production by 5.5 billion gals., causing corn prices to fall by more than 13%.

  4. When corn prices are high, any moderation or modification of the biofuels policies will reduce ethanol production and slightly reduce corn prices.

  5. If the ethanol blend is raised from 10% to 15%, there’s only a modest increase in ethanol use and a 1% increase in corn prices.

  6. Whatever changes are made to ethanol policies, other market fundamentals such as weather and oil prices will raise or lower their importance.
For the complete FAPRI report:

For the week ending May 31, according to the National Agricultural Statistics Service:

  • Corn – 93% is planted, 1% behind last year’s pace and 4% behind the five-year average. Some favorable fieldwork days in Illinois, Indiana, North Dakota and Ohio allowed planting to advance by 20% or more. Except for Ohio, planting lags 13-17 points behind the average due to saturated soil earlier in the season. 73% has emerged, compared to 71% last year and 86% for average. Although corn emergence advanced more than 29 points last week in much of the Corn Belt, development lagged significantly behind the five-year average. The corn crop was rated 70% Good to Excellent, 10% more than a year ago.

  • Soybeans – 66% is planted, which is 1% ahead of last year and 13% behind normal. 36% has emerged, which is 6% ahead of last year, but 15% behind average. Following a surge in planting progress the previous week, development in Iowa, Minnesota and Nebraska reached 59%, 57% and 73% emerged, respectively.

  • Winter wheat – 77% advanced to the heading stage, 4% ahead of the same time last year, but 4% behind average. Development to the heading stage was complete in Arkansas, North Carolina and Oklahoma, and nearly complete in California, Kansas and Texas. Rapid development was evident in Nebraska and Ohio, where 37% of the crop reached the heading stage during the week. 45% of the winter wheat acreage was Good to Excellent, 2% less than a year ago.

  • Spring wheat – 89% of the crop is in the ground, which is 11% behind last year, and 9% behind the average pace. Planting was behind the previous year and five-year average in all states except South Dakota and Washington, where planting was complete. 67% has emerged, which is 24% behind last year and 23% in back of average. In Minnesota, development advanced rapidly, following the planting efforts of the previous week. 73% of the crop was rated Good to Excellent, 16% more than a year ago.

  • Barley – 87% of seeding is complete; 12% behind last year and 11% behind average. North Dakota producers seeded the largest amount of acreage during the week, reaching 79% planted, lagging 18 points behind normal. 60% has emerged, which is 29% in back of last year and 28% behind the average pace. In Minnesota, 39% of the crop reached emergence during the week, the largest advancement when compared with other states. The condition of the barley crop rated 72% Good to Excellent, compared to 59% at the same time a year ago.

  • Sorghum – 57% of the intended acreage is sown, 4% ahead of last year but 1% behind the average. Planting in Illinois was more than a month behind, due to the abundance of soil moisture. However, planting was well ahead of last year and the average in New Mexico.

  • Oats – 92% has emerged, the same as last year, but 4 points behind the five-year average. Development was delayed in North Dakota where up to 3 in. of rain fell during the week, keeping emergence 24 points behind the average development pace. 31% has headed, 1% more than a year ago, but the same as average. Development to the heading stage had begun in most states, while heading in Texas was nearly complete. 56% was rated Good and Excellent, compared to 60% at the same time last year.

  • Pasture – 58% of the nation’s pasture and range is rated as Good or Excellent, 7% more than at the same time last year. 16% is rated Poor or Very Poor, compared to 22% a year ago.

    States with the worst pasture conditions – at least 30% of the acreage rated Poor or worse – include: Arizona (54%); California (70%); New Mexico (59%); and Texas (36%).

    The lushest conditions – at least 40% rated Good or better – exist in: Alabama (87%); Arkansas (72%); Georgia (72%); Idaho (84%); Illinois (81%); Indiana (77%); Iowa (71%); Kansas (66%); Kentucky (67%); Louisiana (61%); Maine (98%); Maryland (88%); Michigan (68%); Minnesota (47%); Mississippi (73%); Missouri (70%); Montana (51%); Nebraska (74%); Nevada (58%); New York (78%); North Carolina (79%); North Dakota (55%); Ohio (68%); Oklahoma (69%); Oregon (64%); Pennsylvania (83%); South Carolina (75%); South Dakota (70%); Tennessee (79%); Utah (66%); Virginia (82%); Washington (45%); Wisconsin (67%); and Wyoming (71%).