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Nuts & Bolts

August 2, 2012

Amid a drought, does it still make sense to use corn for fuel?

The biggest U.S. drought in half a century is devastating farms across the Midwest. Crops are wilting. Food prices are on the rise. Under the circumstances, then, does it still make sense for the government to divert a hefty portion of the nation's corn output into making fuel?

Some groups are starting to ask exactly that question.

This week, a coalition of U.S. meat and poultry producers called on the Environmental Protection Agency to relax its corn-ethanol program for one year. The producers argued that the heavy use of corn for fuel is driving crop prices even higher at the worst possible moment. (The EPA denied a similar request from Texas Gov. Rick Perry in 2008.)

"America's pork producers are extremely worried, given the drought affecting much of the corn-growing regions, about having feed for their animals," said Randy Spronk, president of the National Pork Producers' Council, in a statement.

It's not hard to see why they're worried: Under the EPA's Renewable Fuel Standard, U.S. refineries are required to blend their gasoline with a certain percentage of biofuel each year. The rule has helped the United States reduce its dependence on oil. But it also requires a lot of corn. In 2012, the standard will require 13.2 billion gallons of ethanol, which could consume as much as 40 percent of this year's already shrunken corn crop.

Meat and poultry producers get hit especially hard when the price of corn and animal feed rises. Many livestock producers have to respond by culling their herds to stem losses. In the short term, that leads to a drop in meat prices, which squeezes the industry further.

Yet corn growers and ethanol producers say it's too soon to panic. "With the crop still in the field, it is too early to determine this year's final corn supply," said Garry Niemeyer, president of the National Corn Grower's Association, replying to the petition. What's more, Niemeyer noted, the ethanol industry has a surplus of fuel right now, which can help offset the impact of the drought. Under the EPA's program, ethanol producers can carry over credits from year to year, giving them some flexibility to deal with shortages.

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