Craig Uden, a fourth generation cattleman from Elwood, NE, is an old hand in the cattle business. He is a partner in Darr Feedlot, Inc., a commercial cattle feeding operation, and he and his wife, Terri, own and manage three commercial cow-calf operations. In his spare time, Uden serves as vice chair of the NCBA’s Policy Division.
He buys a lot of corn, too.
Last week, on behalf of the National Cattlemen’s Beef Association, he spoke out against the current state of the Renewable Fuels Standard and its effect on the price of a bushel of corn. To be precise, he wasn’t against ethanol production, just the artificial price supports it enjoys at a devastating cost to the cattle industry. Answering my questions about his objections, he restated that position several times. Underlined it. Emphasized it. Highlighted it with a bright yellow Sharpie.
But to be clear, he and NCBA want a change and think H.R. 1462, the proposed RFS Reform Act, will give the cattle industry the relief it needs. He suggests government rules and regs should be set aside and let the market decide how corn should be used. The point is debated in ag circles often, though, and pro-ethanol advocates think things are just fine the way they are. With many cattlemen also in the corn business, there’s a tricky tightrope, swinging in the political and financial breezes, being walked by a lot of people.
If you’re growing corn, $8 per bushel is a great place to be. If you’re a cattleman buying corn, it’s not so good. Remember the good old days of $3 corn? Here’s what Mr. Uden had to say about the problem:
Q. Craig, speaking for the National Cattlemen’s beef Association, you said, “NCBA appreciates the efforts of the House Energy and Commerce Committee in discussing the RFS, and we look forward to working with the committee on making significant changes to this policy . . . It is clear that the RFS must be overhauled and the RFS Reform Act (H.R. 1462) proposes to do just that.”
Would you explain how H.R. 1462 will overhaul the RFS standard so that it will become acceptable to the NCBA?
A. The Renewable Fuel Standard Reform Act you referenced would eliminate the corn based ethanol mandate under the RFS and rescind the requirements of blending up to 15% of ethanol into the fuel supply. In effect, this bill would generally reduce the total RFS between 2014 and 2022. This would bring the RFS under control and allow corn based biofuels to stand accountable to more of a market-based system. That is all we are asking, cattlemen and women do not oppose the ethanol industry, but we do oppose the government manipulation of the corn market through a flawed mandate. We oppose the RFS, and will continue to work with Congress on reform.
Q. The NCBA doesn’t stand alone in its opposition to the current bill. The National Coalition of Chain Restaurants also spoke against it, citing major increases in their cost of doing business as a direct result of RFS. In fact, representatives from White Castle and Wendy’s joined NCBA President Steve Foglesong in Washington recently to launch something called ‘Feed Food Fairness: Take RFS Off the Menu.’ How well did that effort work and what other groups are with you? Why are they objecting to RFS?
A. That is correct; there are a number of groups that oppose the current form of the RFS. We were very pleased to join with members of Congress and burger establishments that are taking a hard look at the policy that surrounds the market manipulation that has resulted from the RFS. These wild swings in the price of corn have not been good for anyone who has to work within that market. Wendy’s and White Castle, sell the product our members produce every day. The issues that affect them, in turn affect our producers.
We are working with our coalition of livestock and poultry groups, and members of Congress that feel the effects of the artificial market created by government fiat. The interests are varied, livestock and poultry groups feel the pinch in purchasing grains on the open market, when the market is heavily influenced by this mandate.
Q. Ethanol proponents have always claimed that their use of corn had little or no effect on the price of corn. NCBA and many others strongly dispute that claim. Would you take me through the math that supports your position?
A. Last year, the RFS mandated 13.2 billion gallons of corn-based ethanol be blended into gasoline. That required between 4.9 and 5.0 billion bushels of corn in 2012. In 2012 total corn harvest according to the USDA was 10.8 billion bushels. That means that nearly half of all corn harvested in the United States was used for corn-based ethanol production.
In April 2013, Dr. Thomas Elam of FarmEcon undertook a study on the RFS, titled The RFS, Fuel, Food Prices, and the Need for Reform. Dr. Elam found that following the increase in the RFS in 2007, food price inflation relative to all other goods and services accelerated to twice its 2005-2007 rate. And that post-2007 rates of food price inflation and declines in food affordability were associated with sharp increases in corn, soybeans and wheat prices. These numbers are commensurate with nearly half of the corn being mandated for use by the RFS.
Ethanol proponents tout distiller grains as a substitute for the corn they have taken off the market as offsetting their price distortion. However, in my operation, I find the price and availability of DDGS to be more in line with the current price of corn and while they are an excellent source of protein, they still need to be mixed in a ration with other grains to fulfill the requirement for cattle in my feedlot. In other words, DDGS are not a one for one comparison in regard to a bushel of corn, not even close. Moreover, they separate the fat now for corn oil so it doesn’t have the energy value, just another protein source.
Q. Growth Energy CEO Tom Buis says the RFS is the most successful energy policy this nation has enacted in the last 40 years. He prefers to shift the blame on ‘Big Oil’ citing a recent World Bank study that shows the biggest driver of increased food prices has been crude oil – responsible for almost 50-percent of the change in food prices since 2004. Are you placing too much blame on RFS and not enough on the price of a barrel of imported oil?
A. Crude oil prices certainly have a substantial effect on all stages of commodity production and transportation. But crude oil competes in a free and open market, the price of crude is set by the availability and demand. There is no government mandate that nearly half of all crude oil be directed toward some non-market driven goal. The fact remains, there is a government mandate directing a substantial amount of commodity corn to be refined into ethanol. This amount will continue to rise.
Cattlemen do not oppose ethanol, many of my friends are currently involved in the ethanol industry and we have some very lively discussion every time I am quoted in an article. We support the renewable fuels industry and the good they have done for rural America. What we don’t support is the RFS and the price distortion it has brought about and the cattle producers it has put out of business.
Yes, the ethanol industry has been successful and producing what they were mandated to produce, but I don’t find that to be successful energy policy. Also with this hyper inflated corn price, due to mandated production, many plants cannot afford to run and thus many have shut down or sold, having a negative effect on the rural community in which they are located.
Q. The Renewable Fuels Act was passed 8 years ago, in part to help wean Americans away from over-reliance on foreign oil supplies. Have we seen significant changes in the circumstances that made RFA an important bill in 2005?
A. Again, we support homegrown opportunities and anything that brings more stability to rural areas. But as farmers and ranchers, we all stand in this together and we cannot continue to artificially prop up one industry at the expense of all others. Livestock and poultry farmers have always been the largest consumers of corn and soybean grower’s products. We’re their longest running customer, turning grass and grains into nutrient rich protein.
But fact is ethanol production has made little or no change to U.S. energy supplies or dependence on foreign crude oil. Rather, we are seeing the portion of domestic refined petroleum replaced by ethanol being exported. I am not sure if circumstances have changed, but the RFS has had little discernible effect on our appetite for petroleum, or its intended goals.
Q. There seems to be two approaches that are being discussed in Washington. Legislation pending in the House would repeal the 15% standard. John Barrasso, R-Wyo., Mark Pryor, D-Ark., and other senators introduced a companion measure in the Senate. Rep. Bob Goodlatte, R-Va., asked for a full repeal. The legislation he introduced (H.R. 1462) eliminates an “advanced biofuels” category and decreases the amount of the alternative fuels that are required through 2022. If you had your choice, would you prefer a partial roll back or a complete repeal the RFA and let the free market dictate the future of ethanol?
A. Again, we believe in a supply and demand market and all we are asking for is a level playing field. NCBA policy supports a transition to a market-based approach for the production and usage of renewable fuels. We are very pleased Congress has taken an interest in this topic. The House Energy and Commerce requested whitepapers from all stakeholders in April of this year and held their first in a series of hearings on the impacts of the RFS. I am pleased that members of Congress have made this a priority.
Q. Beyond what we’ve discussed so far, is there anything else you would like to add?
A. I really want to stress that cattlemen and women are not opposed to ethanol or renewable fuels. We do not want to see them disappear. We are not asking for that. But what we do need is a level playing field. When the RFS was first debated, livestock and poultry was not invited to the table, but we did appear on the menu. We still made suggestions as to how this process could work for all of agriculture but those suggestions were ignored.
Our only compensation was the waiver system, the safety valve, that should the RFS ever threaten the viability of industries that rely on these finite commodities, there was a waiver that could be activated. But the waiver process is broken. The waiver process has been tried twice and denied twice. In 2008, the State of Texas requested a wavier and in 2012 Arkansas and North Carolina along with Texas, Georgia, New Mexico, Maryland, Delaware and Virginia requested a waiver. If the worst drought in over 70 years doesn’t warrant a waiver, what does? Don’t throw the ethanol out with the mandate, the RFS needs to go.
The opinions expressed in this column are solely those of Chuck Jolley, a veteran food industry journalist and columnist.