July 30, 2012

Despite ignorant display by Smithfield’s CEO, ag should stick together during drought

Nearly every sector of agriculture is hurting right now, with designated disaster areas spreading across more than 1,000 counties in 26 states – figures that are certain to expand in the coming weeks.

It makes no difference to Mother Nature what part of agriculture you’re in – crops like corn; animal agriculture like beef, dairy and poultry; ethanol producers; orchards; wineries; alfalfa and hay, and so on. Even some farm ponds and streams are drying up, causing additional stress for farmers who typically let Mother Nature provide their animals’ drinking water.

Yet if you ask the $13 million man C. Larry Pope, CEO of Smithfield Foods, he’ll tell you that ethanol is worse than the drought.

What an incredibly ignorant or disgustingly flippant perspective.

Pope brags that his multi-national conglomerate is the largest pork producer in the world, that it feeds 16 million pigs across 12 states. Yet his company, which has the ways and means to hedge corn costs, perhaps gambled and failed for months to lock in corn prices – and profits. And somehow that’s the fault of corn-based ethanol.

Predictably – especially since he said the same thing when corn was $4.00 – Pope wants the Renewable Fuels Standard (RFS) and the ethanol to go away so he can make more money off drought stricken farmers.

Who knows where the corn crop will end up, but it’s safe to say for most farmers the hopes of a record year have dried up. Just as they have for those involved in all the sectors of agriculture mentioned above.

Still there is talk of repealing the RFS out there – but that seems misguided. The RFS is the only thing we have that ensures motorists have options at the pump, as Big Oil would have otherwise eliminated any choices other than oil long ago. The RFS has also helped the United States reduce it’s foreign oil dependence to less than 50 percent, a fact acknowledged even by Big Oil.

Another path to reduce ethanol production is a waiver request – something that was built into the RFS when it was put in place. States and fuel suppliers are the only ones who can ask the Environmental Protection Agency for a waiver, which could reduce the amount of renewable fuels like ethanol used over a set period of time.

While some believe this would lead to a magically significant decline in corn prices, according to at least one study it wouldn’t.

What many fail to understand is that in addition to a waiver request, which requires affected parties to show significant economic harm, fuel suppliers/blenders can build up “Renewable Identification Numbers” or RINs. Fuel blenders get RINs when they use more renewable fuels than required – and estimates are that there is a surplus 2.5 billion RINs available right now. And if fuel blenders need more, they can carry a deficit of RINs into the next year. This by itself may already reduce ethanol production and the corresponding corn demand over the next year.

There’s also a surplus of ethanol already in storage – and several ethanol plants, including from some of the biggest companies in ethanol, have already idled plants. Many other plants are running at reduced capacity – and losing money on every gallon they produce.

Unless the corn crop is better than expected, this will lead more ethanol plants to shut down later this year and in the first quarter of next year, further reducing the amount of corn going to renewable fuels. (This will, of course, also reduce the amount of livestock feed and corn oil coming from ethanol plants. The feed, distillers grains, makes inexpensive roughage like chopped corn stocks and soybean stubble a valuable feed option for cattle producers, something that shouldn’t be ignored.)

With the availability of RINs, the stockpile of ethanol and the fact that ethanol plants are already laying people off, it seems a bit premature to even ask for an RFS waiver.

The waiver process is always there, but with all these variables, including the uncertainty of where we’ll be come corn harvest, it seems to early to go down that path.

For now, we should hope for the best, hope that Mother Nature provides a break from the heat and some much needed and widespread rain. That’s the best thing for everyone involved.

In the mean time, people like C. Larry Pope will continue to attempt to drive a wedge between different sectors of agriculture and no doubt some media will go right along with him. Hopefully this does not happen, as all of agriculture needs to pull together during these tough times. Getting the farm bill, which may have disaster assistance for livestock producers tied to it, moving in the House should be the top priority of everyone. Not bickering and finger pointing.

Yet in the end, even with $7.00 corn, there’s still only a dime’s worth of corn in a box of corn flakes, about 1.4 cents more than if corn is $6.00. The packaging, processing, fuel, etc., all make that box what it costs today.

And by eliminating 10 percent of our fuel supply – ethanol – there’s no doubt we’d see a tremendous increase in the cost of gasoline, perhaps $1 per gallon more than today. And that would cost families and our economy dearly.

No comments:

Post a Comment