RFS waiver would drop corn prices: NCC

by Meat&Poultry Staff
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WASHINGTON – Corn prices could be reduced by more than $2 per bushel if a one-year waiver were granted against the 2013 Renewable Fuels Standard (RFS) requirement. This opinion is based on economic data cited in comments submitted Oct. 11 by the National Chicken Council (NCC) to the Environmental Protection Agency in support of a one-year waiver of the RFS.

Almost 10,000 individual comments from those whose livelihoods depend on the chicken industry, approximately three-quarters of which came from chicken farmers, were also hand-delivered by NCC.

“Our comments prove in detail that the RFS is causing severe economic harm to the US economy, and the 2013 requirement must be waived in full, said Mike Brown, NCC president. “Today’s corn crop report released by the US Department of Agriculture verifies this harvest will mark the lowest production since 2006. Despite 13 percent less corn than last year to go around, it is irresponsible to divert more than 40 percent of it to use as a second-rate motor fuel.”

Brown pointed out that Zacky Farms LLC filed for bankruptcy this week due to rising feed costs. It became the eighth company in the last two years to file for bankruptcy, be sold or simply close its doors. “How many more jobs and family farms have to be lost before we change this misguided policy and create a level playing field on the free market for the end-users of corn?” he asked.

NCC’s comments cite an August 2012 report prepared for the Farm Foundation by three Purdue Univ. economists that evaluated how an EPA waiver of the ethanol mandate would affect the corn and ethanol markets. Reducing the amount of ethanol blended into gasoline in 2013 would reduce corn prices by $2 per bushel, a nearly 25 percent reduction, calculations from their model claim.

Decreasing corn prices by $2 per bushel would significantly relieve pressures on consumers at the grocery store, plus the food, livestock and feed industries. As the price of corn decreases, so should prices of meat, poultry and dairy products, plus foods containing corn-based sweeteners, starches, flours and oils, as well as substitute products, such as wheat, soybeans and any foods made using them as an ingredient.

A marginal decrease in corn price of 24 percent, based on a reduction in the price of corn by $2 per bushel, would result in a decrease of approximately 2.4 percent in retail food prices. USDA estimates food prices will increase 3-5 percent in 2013. This means, NCC stated, less than half of the price increase caused by the RFS requirement is equival to half-to-nearly-all of the projected increase in the price of food.

A decrease of $2 in the price of corn per bushel equals a decrease of $71.43 per ton of corn, which results in feed costs that are $32.14 to 47.86 lower per ton. The US broiler industry uses 1.25 billion bushels of corn annually. Savings of $2 per bushel of corn would amount to $2.5 billion in annual savings to the chicken industry.

NCC relays since the RFS went into effect in October of 2006, the US chicken industry had to endure more than $30 billion collectively in increased input costs. Growers and farmers who produce poultry and livestock suffer as processing plants find themselves unable to keep pace with the increasing costs of grain. When poultry processing plants close, the economic effects reach those employed both directly and indirectly by the plant.

In 2011, the total direct and indirect employment by the US chicken was approximately 1,010,250 workers, producing wages of $47.3 billion and generating $197.6 billion in economic activity. At the local level, one processing plant is supported by about 300 farm families. The direct effect of the increased price of corn is to put local farmers and workers employed by the chicken industry out of business, NCC charged.

NCC added the US chicken industry has suffered since the RFS was implemented, in contrast to the industry’s average annual growth rate of 4.0 percent and historical resiliency even during difficult economic times. US broiler production decreased by 3.8 percent in 2009, which is the largest decrease since 1970. 2011 and 2012 each experienced a 1 percent decrease in production, representing the first time in this period the US broiler industry has seen two consecutive years of negative growth.

As a result, this historically resilient industry has experienced the greatest growth decrease in more than 40 years during the implementation of the RFS, when it has seen demand for one of its primary inputs drastically and artificially increased, NCC charged. 

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