Posted: Wednesday, June 22, 2011 9:42 AM
Congressional votes last week to end some ethanol subsidies show the tide is turning on support for that industry, dairy industry insiders say.
The Senate voted 73-27 on June 16 on an amendment to end the 45-cent-per-gallon subsidy to blenders and the 54-cent-per-gallon tariff on imported ethanol.
That same day, the House voted 283-128 to prohibit funding for the construction of blender pumps and storage facilities.
"It was good to see both chambers of Congress send a clear signal on the future of ethanol policy," said Rick Naerebout of Western Dairy Business Solutions and Independent Milk Producers, Twin Falls, Idaho.
Livestock producers largely blame ethanol for a significant jump in feed prices, led by corn. Corn prices topped $7 a bushel this week.
Corn prices have doubled on Southfield Dairy, Wendell, Idaho, since last year, said Arie Roeloffs, part owner. That's a jump of $144 million a year on his 4,900 milking cow dairy. And it's just a portion of his feed ration.
"I don't mind having $15 milk, but we need to get our feed costs into reality," he said.
The legislation might change in the process, but the message was clear, Naerebout said.
"Our fiscal policy as it relates to ethanol is going to change, and the dollars that are spent to subsidize the ethanol industry are going to be cut significantly, if not eliminated," he said.
Even that won't completely fix the problem because there is still the EPA mandate to blend required amounts of ethanol, but it is a good start, he said.
That mandate requires that 12.6 billion gallons of ethanol be blended with gasoline in 2011. The oil and gas companies' tax credit is estimated to costs the government about $6 billion annually.
It is an "unwise public policy of providing billions of dollars in government subsidies for an activity that is already mandated by law," said Rob Vandenheuvel, manager of the California Milk Producers Council.
The amendment was attached to the Economic Development Revitalization Act, which still has to be approved by the Senate, House and the president.
"But ... it is now clear that in an up-or-down vote, there are 73 of the 100 U.S. senators (a veto-proof majority) that support the immediate repeal of these subsidies," he said.
Whether they'd act on it, however, might be a different story, Steve Meyer and Len Steiner wrote in their Daily Livestock Report.
The bill "has no chance of passing. Maybe some Democrats really wanted to say what they thought about ethanol without having to do anything about it," they stated.
Nonetheless, the strong support for ending the subsidy and tariff does change the entire debate, said Bill Van Dam, CEO of the Alliance of Western Milk Producers.
"The focal point of the coming discussion is that the ethanol industry wants all or part of that money for their own use," he said.
That could lead to a compromise that is worse than the current situation, such as subsidies to ethanol producers when the price of corn is too high to make a profit, he said.