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Chick-News.com Poultry Industry News, Comments and more by Simon M. Shane

Request for Compensation by Ethanol Industry Unjustified

07/23/2020

Recently the Renewable Fuels Association representing ethanol producers requested Congress to authorize disbursement of funds from the USDA Commodity Credit Corporation to support the industry.

 

Dr. Joseph Glauber, previously a Senior Economist with the USDA for over 30 years and now a Senior Research Fellow at the International Food Policy Research Institute and a Visiting Scholar at the American Enterprise Institute considers that supporting the ethanol industry would be "a bad idea".  The industry claims losses as a result of decreased revenue of $7 billion in 2020 attributed to COVID-19.  Glauber correctly points out that the major cost input in the production of ethanol is in fact corn, the substrate for fermentation.  USDA estimates that decreased ethanol production would correspond to 600 million bushels effectively lowering the price of corn received by farmers.

 

The University of Illinois has calculated that net profit to ethanol producers over the past four years has amounted to 5 cents per gallon.  The price of ethanol has fluctuated widely in recent months.  On July 17th ethanol was priced at $1.17 per gallon, down 23 cents per gallon from the previous week but higher than the five-year low of $0.92 a gallon on March 26th.  During March, approximately 50 percent of ethanol production was off-line, but with increased demand for gasoline, prices for ethanol have risen above the critical “shutdown value”.


Dr. Joseph Glauber

 

Glauber notes that thirty-three ethanol plants received between $25 million and $60 million in Small Business Administration, Paycheck Protection Program grants.  Without new legislation, transferring funds from the Commodity Credit Corporation would conflict with the Act chartering the corporation.  Funds were intended by Congress to be disbursed to farmers, not for purchasers of agricultural commodities including ethanol producers.  Legislation introduced by corn-state senators is intended to reimburse ethanol producers for the value of corn purchased between January 1st and March 31st.  Glauber considers this to be preferential treatment since it is not contemplated that grain traders would receive support funds.  The intention to subsidize ethanol plants from the Commodity Credit Corporation is construed as an unfortunate precedent and will lead to additional claims and unintended consequences. But what the heck it’s an election year and the grandkids will pay eventually.


 
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