Senate vote to end ethanol support seen as symbolic

by Jay Sjerven
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WASHINGTON — The U.S. Senate’s 73-to-27 vote to immediately end the 45c-a-gallon Volumetric Ethanol Excise Tax Credit and the 54c-a-gallon import tariff raised some eyebrows in the ethanol industry and of corn growers but was generally seen as symbolic with a sure veto should the measure ever reach President Barack Obama’s desk. Also, the House of Representatives this week voted to block U.S. Department of Agriculture funding to help gas stations install pumps to handle higher blends of ethanol.

The separate votes in both houses of Congress certainly sent a message that support for ethanol was waning under current U.S. economic stress.

Controversy has swirled around the blenders’ tax credit ever since the U.S. Congress passed the Energy Policy Act in 2005 and enacted additional energy legislation in 2007. While presidents Bush and Obama both hailed ethanol as a necessary step to reduce dependence on foreign (Middle East) oil, others saw it as significantly contributing to higher food prices and potentially to global food shortages. The ethanol subsidies cost U.S. tax payers an estimated $6 billion annually. Domestic livestock feeders as well as the World Bank, the U.N.’s Food and Agriculture Organization and others have strongly opposed corn-based ethanol as a reason for higher feed and food costs.

Corn growers hailed the blenders’ credit to keep a major outlet for their crop. The ethanol industry’s growing appetite for corn has been obvious with corn used to produce ethanol growing from 996 million bus (11% of production) in 2002-03 to 5,050 million bus (38% of production) projected for 2010-11. Corn planted area increased 15% from 78.9 million acres in 2002 to an estimated 90.7 million in 2011. The average price of corn in 2002 was $2.32 a bu compared with a U.S.D.A. projected record $6@7 in 2011-12.

The Senate’s action combined with other more important factors, such as improving weather, lower crude oil prices, strength in the dollar and general economic worries, to send nearby corn futures from record highs on June 10 to one-month lows on June 16.

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