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The Ethanol Surprise From Congress

The National Cattlemen’s Beef Association (NCBA) has been working extremely hard to put cattlemen back on an equal footing with the ethanol industry when it comes to purchasing corn. The organization has argued that, after 40 years of subsidies, ethanol should be forced to stand on its own.

There are indications that the ethanol subsidies have lost some favor in Washington, as environmentalists have withdrawn their support and as deficit concerns have grown. NCBA has known for quite some time that it had the votes in the House to advance change, but felt any Senate vote would be close. Thus, the vote last week in which 73 senators voted to end both the blender credit and the import tariff signified a major change in the ethanol debate.

Since the votes are believed to be there for passage of a similar measure in the House, we can expect a very similar result from that chamber soon as well. The demise or scaling back of these subsidies should open up the flow of other ethanol forms that are significantly cheaper and better alternatives to corn ethanol, but it doesn’t necessarily mean the corn market will be rationalized anytime soon. As long as the ever-increasing mandates are in place, ethanol will still be used at a rate far greater than the marketplace would ever support and produce on its own. Still, these votes in Congress are certainly major steps forward.

Not surprisingly, the ethanol industry isn’t happy with the vote. Their strategy seems to be a multiple-pronged effort – to rationalize the votes as merely election-year positioning; attempt to get the money moved into other areas, such as building ethanol infrastructure – more pumps, pipelines, etc.; and lastly work for an eventual presidential veto.

Certainly, the upcoming election played a role in the change of attitudes in Washington, but that doesn’t necessarily mean the political sentiment is temporary. It wouldn’t be the first time that Washington took a vote and then did an end run to accomplish the same goal by different means. And, the ethanol industry might be successful in its bid to move the existing subsidies into other forms of subsidy support. But, in today’s deficit reduction mode, the odds of getting it all back are slim.

Meanwhile, the presidential veto is highly unlikely. For one thing, the vote to eliminate the subsidies passed by a veto-proof margin. Secondly it is part of a larger debt reduction and small business job creation bill that President Obama is unlikely to veto just to save ethanol subsidies.

Cattlemen shouldn’t be planning on $4/bu. corn anytime soon, but this was an important victory for cattlemen who want a more level playing field when they compete to purchase corn.