The worst drought in 50 years has destroyed one-sixth of the U.S. corn crop. The USDA’s World Agricultural Supply and Demand Estimates (WSDE) report, released Friday, projects the smallest corn crop in six years and the lowest corn yields per acre since 1995.

As acreage, production, and yields declined, corn prices spiked. Last week, corn futures hit a record high of $8.29-3/4 per bushel.

If corn prices remain  high through 2013, livestock producers who use corn as a feedstock will incur billions of dollars in added costs. “These additional costs will either be passed on to consumers through increased food prices, or poultry farmers will be forced out of business,” warn the National Chicken Council and National Turkey Federation.

Even before the drought hit, corn prices were high. Prices increased from $2.00 a bushel in 2005/2006 to $6.00 a bushel in 2011/2012, notes FarmEcon LLC. A key inflationary factor is the Renewable Fuel Standard (RFS), commonly known as the ethanol mandate. Since 2005, the RFS has required more and more billions of bushels to be used to fuel cars rather than feed livestock and people.

Suspension of the mandate would allow meat, poultry, and dairy producers to compete on a level playing field with ethanol producers for what remains of the drought-ravaged crop. That would reduce corn prices, benefiting livestock producers and consumers alike.

EPA Administrator Lisa Jackson has authority under the 2007 Energy Independence and Security Act (EISA) to waive the RFS blending targets, in whole or in part, if she determines that those requirements “would severely harm the economy or environment of a State, a region, or the United States.” The pressure on her to do so is mounting.

On July 30, a coalition of meat, dairy, and poultry producers petitioned Jackson to waive the 2012 and 2013 RFS blending requirements. From the petition:

As detailed below, the extraordinary and disastrous circumstances created for livestock and poultry producers by the ongoing drought in the heart of our grain growing regions requires that all relevant measures of relief be explored and taken where possible. One of these measures must be the amount of grain utilized for the production of renewable fuel. The ongoing drought is taking an enormous toll on the nation’s corn crop. As we detail below, the 15.2 billon gallon  renewable fuel standard (“RFS”) in 2012 coupled with the prospect of a 16.55 billion gallon standard in 2013 will require the renewable fuels industry to utilize a major portion of the drought-limited available corn supply. The drought-induced reductions in the corn supply means that the mandated utilization of corn for renewable fuels will so reduce the supply of corn and increase its price that livestock and poultry producers will be forced to reduce the size of their herds and flocks, causing some to go out of business and jobs to be lost. In addition to this direct harm, these herd and flock reductions will ripple through the meat, milk and poultry sectors, causing severe harm in the form of more job and economic losses. This drought-induced harm exists now, will continue to exist into the latter part of 2012 and 2013, and could continue to be felt in 2014 depending on the policy choices made now.

On August 1, bi-partisan groups of 156 House Members  and 26 Senators sent letters to Jackson asking her to “adjust” the RFS targets in light of the drought and rising corn prices. The House letter argues, in part:

As you are aware, U.S. corn prices have consistently risen, and the corn market has been increasingly volatile, since expansion of the RFS in 2007. This reflects the reality that approximately 40 percent of the corn crop now goes into ethanol production, a dramatic rise since the first ethanol mandates were put in place in 2005. Ethanol now consumes more corn than animal agriculture, a fact directly attributable to the federal mandate. While the government cannot control the weather, it fortunately has one tool still available that can directly impact corn demand. By adjusting the normally rigid Renewable Fuel Standard to align with current market conditions, the federal government can help avoid a dangerous economic situation because of the prolonged record high cost of corn.

 On August 9, Secretary General of the U.N. Food and Agricultural Organization (FAO) Jose Graziano da Silva called for an “immediate, temporary suspension” of the mandate  to help avert a repeat of the 2008 food crisis.

Also on August 9, the Govs. of Delaware (Jack Markell) and Maryland (Martin O’Malley), both Democrats, sent Jackson a letter in support of the industry coalition’s petition. From the Governors’ letter to Jackson:

In 2012, more than 40% of the U.S. annual corn supply was to be used to meet the RFS corn based ethanol requirements established annually by the EPA. If you were to exercise your statutory authority to waive the RFS standards for the next year, it would make more than 5 billion bushels of corn available to the marketplace for animal feed and foodstuffs, driving down costs and significantly lessening the financial impact to Delmarva’s [Delaware-Maryland-Virginia] poultry farms and consumers. While there may be some who question the true price impact of waiving the RFS standards for a limited period, those debates are quantitative, not qualitative, as it is not in dispute that a waiver would put downward pressure on corn pricing. Given the likely impacts to the poultry industry, not to mention the increased cost of food for consumers, of this dramatic increase in price due to the undersupply of corn, it is hard to imagine any scenario when exercising your authority would be more appropriate.

There is, alas, little chance Jackson will waive any part of the RFS. That would be asking an executive agency to put economic rationality ahead of political calculation in a presidential election year. President Obama today makes his fifth visit to Iowa this year. Iowa, with six electoral votes, is the heart of corn country. Supporting a waiver to lower corn prices would spoil the President’s photo ops.

Today’s Greenwire (subscription required) reports that the USDA has announced it will purchase up to $170 million worth of meat, poultry, and catfish to help producers who have been adversely affected by high corn prices. The fix on offer is not to scale back regulatory excess but to expand corporate welfare.  

About a year ago on this blog, I offered some skeptical commentary about the gloomy testimony of Dr. Christopher Field of the Carnegie Institution for Science, who warned the House Energy & Commerce Committee that global warming would inflict major losses on U.S. corn crop production unless scientists develop varieties with improved heat resistence.

I noted that long-term U.S. corn production was increasing, including in areas where average summer temperatures exceed 84°F, the threshold beyond which corn yields fall, according to Field.

Well, this just in, courtesy of the Renewable Fuels Association (RFA): USDA projects the U.S. corn crop for 2012 to reach 14.79 billion bushels, the biggest ever. RFA’s objective, of course, is not to debunk climate alarm, but to assure us that we can have our corn (ethanol) and eat it too. Nonetheless, the numbers are mighty impressive and indicate that, in this decade at least, U.S. corn farmers are more than a match for climate change. From RFA’s briefing memo:

At 14.79 billion bushels, the 2012 corn crop would:

• be a record crop by far, beating the 2009 crop of 13.09 billion bushels by 11%.
• be 65% larger than the crop from 10 years ago (8.97 billion bushels in 2002).
• be more than twice as large as the average-sized annual corn crop in the decade of the 1980s (7.15 billion bushels on average).

The 2012 projected yield of 166 bushels per acre would:

• be a record yield, beating out the 2009 average yield of 164.7 bushels per acre.
• be only the third time in history yields have topped 160 bu/acre, the others being 2009 (164.7) and 2004 (160.4).
• be 35% higher than the average yield from the 1990s and 12% higher than the average yield since 2000.

The non-profit Chicago Council on Global Affairs this week gave the Obama administration a B-minus grade for its progress in furthering food security in poor countries, according to a story in today’s ClimateWire (subscription required).

I do not understand how any rational foreign policy expert could award the Obama administration a B-minus for its performance on global food security. This high a score is possible only if the U.S. was graded on a curve with North Korea and Zimbabwe.

During the period under evaluation by the Chicago Council on Global Affairs, America’s Soviet-style production quota for ethanol, a motor fuel distilled from corn, increased almost 4 billion gallons, or 104 billion pounds of maize. This year American farmers will dedicate about a third of the U.S. corn crop—the largest in the world—to ethanol. As I explain here, here, and here, this massive distortion pushes up the price of foodstuffs on the global grains and oilseeds market, which harms urbanites in developing countries. Simply put, our stupid ethanol policy is one of the greatest threats to food security in the world today, if not the greatest.

The 2007 Energy Independence and Security Act codified a gallons-per-year corn ethanol production schedule (this year, it is about 13 billion gallons), but the Obama administration has the authority to adjust it down. And because it hasn’t used this authority, the President deserves an F-minus for promoting food insecurity since 2008.

1. Ethanol Mandates: In an effort to further “energy independence,”* major agricultural producing countries have enacted Soviet-style production quotas for ethanol, a motor fuel distilled from food.

This year, about a third of the U.S. corn crop will be used to manufacture 13 billion gallons of ethanol. By law, that will increase to 15 billion gallons every year after 2015. The European Union mandates that ethanol distilled primarily from palm oil and wheat, constitute an increasing percentage of the fuel supply, ultimately 10% by 2020.

Global ethanol production is a new and tremendous source of demand for food that has had a significant impact on the price of grains and oilseeds. According to a report commissioned by the World Bank, global demand for fuels made from food accounted for nearly 70% of the historic price spike in wheat, rice, corn, and soy during the summer 2008.

2. Rainforest Protections: Burning rainforests is an important link in the global food supply chain. In Brazil, farmers are clearing the Amazon rainforests to meet rapidly growing global demand for soybeans. In Indonesia, they slash rainforests to harvest palm oil seeds for export to Europe.

Rainforests are an important source of food supply, but they are also revered by environmentalists as symbols of ecological diversity. In late 2009, a group of wealthy countries, including Australia, France, Japan, Norway, Britain and the United States, pledged $3.5 billion over the next three years to stop the destruction of the rainforests. It’s the first installment of a proposed $25 billion.

As I explain here, there will be no Malthusian famine, despite these stupid, anti-human policies

There are tremendous gains in production to be made in the developing world, especially in China and Brazil. And technological advances to improve productivity, such as biotechnology, will mean greater yields-per-acre and enhanced crops that can grow in previously inhospitable regions. In the long term, the world’s farmers will meet demand.

In the short to medium term, however, the global supply chain is going to be a problem. A natural disaster in America or in any other major food-exporting country could send the market price of food spiraling upward.

The most adversely affected by these boneheaded policies are poor people in developing world capitals that are dependent on the global grains and oilseeds market. The developing world has been urbanizing for decades, resulting in unprecedented concentrations of the poor in the world’s cities. There are no sustenance farms in urban areas; Instead, many of these cities depend on international trade for food.

*So-called “Energy Independence” is empty political rhetoric, as my colleague Iain Murray demonstrates in this paper.

There is an ongoing ethanol spat between Senator Coburn (R-OK) and Grover Norquist, President of Americans for Tax Reform. The dispute is over conservative support for a bill that would repeal the ethanol tax credit, which has the effect of raising an industry specific tax. Americans for Tax Reform comes down hard on any effort to increase taxes. The Wall Street Journal added their two cents in favor of Senator Coburn:

Our readers know Mr. Norquist as the plucky author of the no-new-taxes pledge, which has helped to make tax increases a red line in Republican politics. In a letter to Mr. Coburn, a deputy of Mr. Norquist writes: “Repealing the ethanol credit is the right thing to do, but other taxes must be reduced in the same legislation by at least this much to prevent a net tax increase.”

We understand the larger principle that Americans for Tax Reform is trying to defend. Axing every credit, exemption and deduction in the tax code, while leaving tax rates high, would result in a higher general tax burden and more money for Washington to spend. A true tax reform would trade such tax loopholes and subsidies for lower rates.

Coburn’s amendment (which would have been attached to a larger bill) is dead, so the fight is in recess and will reappear before the end of the year. It seems that it would be much harder to pass legislation that would kill the VEETC and also lower taxes, rather than solely ending the VEETC. It also raises the question of which other taxes should be lowered. The VEETC goes back to oil refiners, though some of the savings are passed onto consumers.

This issue came up in 2010. Americans for Tax Reform clearly articulated their position here:

In recent days, Americans for Tax Reform’s opinion on extending the Volumetric Ethanol Excise Tax Credit (“VEETC”)has come into question.  Below is our position on the issue:

1. VEETC is poor energy policy. Encouraging inefficient fuels which accomplishes neither reductions in carbon—its purported impetus— nor monetary gains for American families is bad energy policy.
2. The VEETC is a tax credit which expires at the end of 2010.  There is no obligation on the part of pro-taxpayer elected officials to vote to extend an expiring tax credit which they believe is bad policy.  In the past, the question has been the elimination of the VEETC while it was still in force.  This affirmative tax hike would have been a violation of the Taxpayer Protection Pledge, but that issue is not applicable to this debate.
3. Therefore, Americans for Tax Reform neither supports nor opposes extending the Volumetric Ethanol Excise Tax Credit.

Instead, they blame those darned speculators (are they aware of the important role played by commodity markets?) again. The industry continues to find support in high places:

Speaking to farmers earlier this month, the Obama administration’s agriculture secretary said he found arguments from the like of Nestlé “irritating”. Mr Vilsack said: “The folks advancing this argument either do not understand or do not accept the notion that our farmers are as productive and smart and innovative and creative enough to meet the needs of food and fuel and feed and export.”

Well, the price of corn has almost doubled in the last 6 months. Now, its obviously unfair to blame this entirely on biofuels. Food crops are heavily dependent on a number of other important factors like the price of oil, the weather, crop yields, etc. However, with 35% of U.S. corn being turned into biofuels, it clearly has a major effect on the price, driving it upwards (and driving other commodities higher as well, as farmland becomes more scarce). Globally, U.S. exports provide about 60% of total corn supply.

As noted in the article above, this has consequences:

Peter Brabeck-Letmathe, the chairman of Nestlé, lashed out at the Obama administration for promoting the use of ethanol made from corn, at the expense of hundreds of millions of people struggling to afford everyday basics made from the crop.

Mr Brabeck-Letmathe weighed in to the increasingly acrimonious debate over food price inflation to condemn politicians around the world who seem determined to blame financial speculators instead of tackling underlying imbalances in supply and demand. And he reserved especially pointed remarks for US agriculture secretary Tom Vilsack, who he said was making “absolutely flabbergasting” claims for the country’s ability to cope with rising domestic and global demand for corn.

“Today, 35 per cent of US corn goes into biofuel,” the Nestlé chairman told an audience at the Council on Foreign Relations (CFR) in New York yesterday. “From an environmental point of view this is a nonsense, but more so when we are running out of food in the rest of the world.

“It is absolutely immoral to push hundreds of millions of people into hunger and into extreme poverty because of such a policy, so I think – I insist – no food for fuel.”

Consumers in the United States aren’t being pushed into poverty, because food represents a much smaller portion of the budget. Elsewhere, riots have been started over the price of food.

Absent subsidies, the domestic ethanol industry would be much smaller, and would likely be blended in small amounts with gasoline. Even if you assume energy independence is desirable from a national security perspective, ethanol policy is completely incapable of bringing that to the U.S. The amount of land required and the effects on other commodity prices would be unfathomable.

Tim Searchinger had a nice op-ed in The Washington Post last month covering the hard to define role biofuels play in food prices.

At Tuesday’s House Energy & Commerce Committee hearing on Climate Science and EPA’s Greenhouse Gas Regulation, Dr. Christopher Field of the Carnegie Institution for Science, presented a scary assessment of global warming’s impact on U.S. grain yields. Field’s written testimony states, in pertinent part:

In the United States, the observed temperature sensitivity of three major crops is even more striking. Based on a careful county-by county analysis of patterns of climate and yields of corn, soybeans, and cotton, Schlenker and Roberts (Schlenker and Roberts 2009) concluded that observed yields from all farms and farmers are relatively insensitive to temperature up to a threshold but fall rapidly as temperatures rise above the threshold. For farms in the United States, the temperature threshold is 84˚F for corn, 86˚F for soybeans, and 90˚F for cotton. For corn, a single day at 104˚F instead of 84˚F reduces observed yields by about 7%. These temperature sensitivities are based on observed responses, including data from all of the US counties that grow cotton and all of the Eastern counties that grow corn or soybeans. These are not simulated responses. They are observed in the aggregate yields of thousands of farms in thousands of locations.

The testimony continues:

The temperature sensitivity observed by Schlenker and Roberts (Schlenker and Roberts 2009) suggests a challenging future for US agriculture. Unless we can develop varieties with improved heat tolerance, modest warming (based on the IPCC B1 scenario) by the end of the 21st century will reduce yields by 30-46%. With a high estimate of climate change (based on the IPCC A1FI scenario), the loss of yield is 63-82%. These three major crops, in some ways the core of US agriculture, are exquisitely sensitive to warming. This result is very clear. We may be able to breed warming tolerant varieties, and it is possible that some of the yield losses due to warming will be compensated by positive responses to elevated atmospheric CO2 (Long et al. 2006), but we will be trying to improve yields in a setting where warming is like an anchor pulling us back.

Well, I’m neither a scientist nor a farmer, but this sort of sky-is-falling alarm is suspicious. Field says his assessment is based on “thousands of farms in thousands of locations,” and that for U.S. corn farmers, the threshold beyond which corn yields fall is 84˚F.

Well, then, it must hardly if ever get warmer than 84˚F in Des Moines, Iowa, smack dab in the middle of corn country, right? Turns out, during 1970-2000, the average daily maximum July temperature in Des Moines was 86˚F. Monthly maximum temperatures were no doubt warmer still during 2001-2010. Due to flooding, U.S. corn production in 2010 was lower than in 2009. Nonetheless, the long term trend is up — from about 600 million bushels in 1958 to 2.2 billion bushels in 2010.  

More pertinently (see p. 6 of U.S. Corn Production & Use Outlook), the long-established trend for U.S. corn yields is up, up, and up. In approximate terms, corn yields were 1,500 kilograms per hectare (kg/ha) in 1935, 2,200 kg/ha in 1945, 2,800 kg/ha in 1955, 4,500 kg/ha in 1965, 5,500 kg/ha in 1975, 6,500 kg/ha in 1985, 7,500 kg/ha in 1995, and 9,500 kg/ha in 2005.

The northwest corner of the Texas Panhandle, which includes Amarillo, is a major corn producing area. During 1970-2000, the average daily maximum July temperature in Amarillo was 91˚F – 7 degrees above the threshold at which yields supposedly fall.

In fact, in most of the places corn is grown in the United States, July daily maximum temperatures often reach 90˚F. As Alabama State Climatologist John Christy pointed out at the hearing, 84˚F is a very cool day in corn season in Alabama. Nationally, from 1980/81 to 2008/2009, average U.S. corn yield has increased from about 2.5 tons per acre to nearly 4 tons per acre.

My advice to corn growers — the end is not nigh, don’t sell the farm!

Humor me for a moment and imagine that I am a superhero who is part of a Super Friends team at the Competitive Enterprise Institute. We have sworn to use our superpowers only to combat a particular form of evil: rent-seeking. Naturally, we’d need a nemesis. This caricature of evil would represent everything we stand against; it would be the ultimate political panhandler.

Without a doubt, our nemesis would be King Corn.

Fantasies aside, the corn lobby, a.k.a King Corn, is unbeatable inside the beltway. In the 1980s, it secured federal giveaways to NOT grow corn. The lobby has since moved on to the ultimate boondoggle: corn fuels. By playing up jingoistic fears of “energy dependence,” King Corn has convinced the Congress that ethanol, a motor fuel distilled from corn, is a national security imperative, despite the fact that it increases gas prices, it’s awful for the environment, it contributes to asthma, and it makes food costlier.

So, in 2007, the Congress passed a Soviet-style ethanol production quota that forces Americans to use corn-fuel in their gas. Thanks to this mandate, American farmers devoted a third of this year’s corn crop to ethanol. Thus corn, soy, and cotton (the three crops grown on corn-hospitable soil in the U.S.) have become recession-resistant.

You’d think that a production quota, along with generous subsidies (to the tune of 51 cents a gallon), would be enough, but there can never be “enough” for King Corn. Now it has its eyes on an even higher production quota. There was, however, an intermediate step to this higher goal-the EPA had capped the percentage of ethanol that could be included in regular gasoline at 10%, due to concerns about engine harm beyond that point. For years, the corn lobby has been trying to lift that cap to 15%. Yesterday, the EPA relented.

Raising the ethanol cap was opposed by the oil industry, the environmental lobby, and the public health lobby. These are K-street titans, and they were vanquished by King Corn.

Behold, the power of King Corn.

Last week Senator Blanche Lincoln (D-AR) became chairman of the Agriculture Committee, after Senator Tom Harkin (D-IA), the previous chair, accepted the gavel at the Health, Labor, Education and Pension Committee (vacated by the passing of Ted Kennedy).

Lincoln becomes the first female to chair this powerful committee, and her ascension to the top-spot will have a big impact on the country’s energy policy.

For almost a decade, the Senate Ag Committee has been the primary benefactor of ethanol, a fuel made from corn. Regardless whether the Ag chair was a Republican or a Democrat, the Committee, which is dominated by corn-belt politicians, showered ethanol with subsidies and give-aways-and even a Soviet-style production quota that forces consumers to use it. Government support for ethanol has been great for corn growers (they’ve seen demand increase by almost 50% since 2005), but it’s awful for livestock farmers, who have seen the cost of corn-feed skyrocket. Consumers have also been harmed, as the price of corn derivatives (meat, dairy, soda, etc., etc.,) has increased so sharply that inflation of the cost of food doubled the historical rate in 2008.

With Lincoln taking the gavel of the Ag Committee, however, the ethanol gravy train might be coming to an end. That’s because Lincoln doesn’t represent the corn-belt. To be sure, they grow corn in Arkansas, primarily in the eastern part of the state. But in western Arkansas, farmers raise chickens. In fact, the Natural State is the nation’s #2 producer of broiler chickens. America’s ethanol policy has seriously compromised the chicken industry, so we can expect Lincoln to take a more conservative approach with fuels made out of food.

Lincoln is also likely to affect the climate debate. The Ag Committee has some jurisdiction over climate change legislation, and Lincoln’s vote on cap-and-trade is a priority for her caucus leadership, which is having a tough time finding support for a climate bill among Senate Democrats. But Arkansas politics are decidedly unfavorable to global warming alarmism. Rep. Vic Snyder (D-Arkansas), who represents Little Rock and much of Pulaski County, was the only member of his State’s delegation to vote for the American Clean Energy and Security Act, cap-and-trade legislation that passed through the House of Representatives in late June, and he has been hammered over the airwaves by utilities, agriculture interests, and political opponents ever since. Now, there is considerable speculation that his seat is in jeopardy-all thanks to his vote for a cap-and-trade. No doubt Lincoln has noticed Snyder’s plight.

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