If there’s any question about what the Renewable Fuel Standard means to the rural economy, just wait a few weeks from now when the U.S. Environmental Protection Agency is expected to announce final volumes for three years.
That announcement could yield almost immediate market effects, Chip Bowling, president of the National Corn Growers Association, told reporters Thursday during a conference call.
“If the EPA raises numbers a little (compared to proposed numbers), you will see an increase in commodity prices,” he said. “The uncertainty put in by a lack of annual volumes was critical in determining how the U.S. ag economy will fair.”
Waning federal support for the RFS is a key reason why farm income in the United States is expected to hit its lowest level in about a decade and investment in advanced biofuels is slowing, according to a new white paper released Thursday by NCGA and the National Farmers Union.
The groups point to EPA’s retreat from the federal mandate requiring a certain volume of biofuels to be blended in the nation’s gasoline supply as one major reason the farm economy is struggling.
“The U.S. Renewable Fuel Standard, which has driven sustainable growth in renewable fuel for a decade and is the only federal law on the books directly targeting climate change, is under dire threat by the Environmental Protection Agency,” the white paper said.
The groups point to new USDA data forecasting a decline in 2015 net cash income for American farmers.
“That devastating forecast is worse than originally projected, and it represents the lowest farm income levels in nearly a decade, and it could get worse,” the groups said in their analysis.
“This year started off bad enough for farmers. In February, the Congressional Research Service called the ‘lack of annual renewable fuel volume percentage standards for 2014 and 2015’ by the Obama administration a ‘key uncertainty’ that was ‘crucial in determining how the U.S. agricultural economy will fare.’ Now, we see the results of that uncertainty.”
NFU President Roger Johnson said during the press conference the RFS isn’t the only reason for lower commodity prices and farm incomes.
“Obviously, stocks are hanging over the market,” he said, “but the RFS is the principal factor that has driven demand.”
CASH INCOME DECLINE
The boom years of the past decade featured expanded markets for corn, mostly created by increased demand for corn for ethanol. USDA projects 2015 net cash income will decline by $35 billion from the 2013 peak. Net farm income for 2015 is projected at $58.3 billion compared to the record level of $123.7 billion in 2013, according to the group’s analysis. That would place net farm income at its lowest since 2006.
The white paper said the enactment of the RFS in 2005 and its expansion in 2007 sparked innovation by U.S. corn farmers.
“The result encouraged the rapid growth of the U.S. ethanol industry, and produced both an increased supply of renewable transportation fuel and co-products to add to America’s livestock feed supply,” the groups said. “However, the current level of uncertainty in this market threatens these valuable investments in innovation and growth.”
CASH CORN RECEIPTS
USDA projects 2015 cash corn receipts will be off by more than $25 billion from a record 2012 showing, including more than a $7 billion decline from 2014.
“Considering all U.S. crop cash receipts are projected to be down about $34 billion since 2012 and nearly $13 billion compared to 2014, it is easy to see why so many farmers so strongly support the RFS,” the white paper said. “It has been the most significant growth factor for agriculture since its inception in 2005.”
The analysis touts how the expansion of corn and ethanol production has benefitted other sectors of the agriculture economy.
The analysis said about one-third of each 56-pound bushel of grain used to produce ethanol returns to the animal feed market through dried distillers grains, corn gluten feed and gluten meal.
According to the analysis, in 2014 the renewable fuels sector became “one of the top animal feed processing segments in the country. It produced about 39 million metric tons of feed, or the equivalent would provide every American with a normal-sized chicken breast every day for a year.
“The agricultural economic revolution spawned by the renewable fuel industry helped raise farm incomes across nearly all agricultural sectors while creating jobs in rural communities,” the white paper said.
“…Unfortunately, the EPA is failing farmers, rural communities, our environment, and economic security by refusing to fulfill its responsibilities to administer the RFS consistent with its statutory obligations.”
The groups said EPA’s proposal to reduce RFS volumes not only hurts farm income, but has “frozen investment in rural communities and new income streams for farmers related to advanced and cellulosic biofuels just as these products are finding their footing.
“The enhanced greenhouse gas and economic benefits of advanced biofuels cannot be realized without strong policy support. This new industry has experienced a $13.7 billion shortfall in investment due to uncertainty around the RFS. That means new plants and jobs won’t be created in rural communities and lost markets for crop residues and other feedstocks, cutting off long-term potential for supplemental farm income.
“The EPA is causing uncertainty throughout the whole renewable fuel and agriculture value chains putting American jobs, innovation and investments at risk, and undermining the social and economic fabric of rural America.”