Producers cringe at higher blend
Updated: Friday, November 19, 2010 10:21 AM
By CAROL RYAN DUMAS
EPA's announcement Oct. 13 that it will raise the allowable blend rate of ethanol in gasoline for later-model cars to 15 percent from 10 percent is raising the hackles of Idaho livestock producers.
"Dairymen are barely catching their breath, and then things like a higher blend on ethanol and corn prices skyrocketing don't help," said Mike Roth, co-owner of Si-Ellen dairy in Jerome, Idaho, and president of Idaho Dairymen's Association.
He said when corn prices go up, prices for other grains follow. Feed accounts for 50 percent to 60 percent of dairymen's overall costs, so a higher ethanol blend is a direct hit to the bottom line.
"With wheat going up, farmers will take out hay and potentially cause our forage costs to go up in the future," he said. "Higher feed costs could lead to less milk and this time around, dairymen do not have additional equity to withstand another downturn."
Things aren't much better for cattlemen.
Keeping feed costs at a level that allows for a profit margin is a constant headache, said Wyatt Prescott, executive vice president of the Idaho Cattle Association.
"Markets are cruel enough," he said. "Government interventions via standards and subsidies may help one industry but greatly impede others by changing the course of the free market, which makes them even more challenging to manage against."
If the higher rate were mandated, it would be devastating, he said. But even raising the allowable blend is concerning.
"Currently, the more press E15 gets, the more markets will react," he said. "However, expansion beyond speculators will not happen until more is known about how broadly it will be implemented."
Market analysts Steve Meyer and Len Steiner, in their CME Daily Livestock Report, forecast no immediate impacts.
"With ethanol selling for very near the price of gasoline at present and containing only 2/3 the energy of gasoline, it is doubtful many (or perhaps any) blenders will move to the 15 percent rate any time soon," they wrote on the day of the announcement.
Dave Roper, a Kimberly pork producer and past president of the National Pork Producers Council, is not so sure.
"We will have to pay more for feed," he said. "And that's all right, as long as we can remain competitive."
That might be hard to do with feed costs that have more than doubled since Aug. 10. Fires and drought in Russia and mixed reports on the quantity and quality of the U.S. corn crop have fueled the jump, he said.
Now it appears even more corn will go for ethanol, tightening supplies and raising feed prices, he said.
"I don't think we've seen the peak of feed prices yet," he said.