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.  

The ethanol industry has found a friend — the US Department of Agriculture. The industry will be less reliant on new legislation to encourage ethanol consumption, thanks to a new USDA announcement that the department will begin funding grants and loan guarantees for gas stations that choose to install new E-85 blender pumps. This was one of the primary legislative goals of the renewable fuels lobbyists.

The funding for the program will be provided by the 2008 farm bill which included funding that can be used to promote renewable energy development. The total fund amounts to $70 million in 2011 and another $70 million in 2012.

From the article:

Most gasoline sold in the U.S. is 10% ethanol, but a growing fleet of flexible-fuel vehicles can run on an 85%-ethanol blend, or E85. However, there are fewer pumps available to dispense it, Mr. Vilsack said.

In the U.S., only about 2,350 fueling stations out of more than 110,000 offer E85 pumps, according to the USDA.

It’s obvious why gasoline retailers are hesitant to install E-85 pumps, adjusting for energy content its not a better deal than gasoline.

When really pressed on why the USDA and the Obama administration continue to support corn based ethanol, they point to using it as helping support the fledgling cellulosic ethanol industry, which seems to always be just 5 years away from commercial viability.

At today’s press conference announcing new Obama administration biofuel initiatives (see here, here, and here), Ag Secretary Tom Vilsack mentioned that USDA has a memorandum of understanding with the Federal Aviation Administration to develop bio-based alternatives to jet fuel. Vilsack’s press release describes the MOU as follows:

The Secretary also announced jointly with the Federal Aviation Administration (FAA) a five year agreement to develop aviation fuel from forest and crop residues and other “green” feedstocks in order to decrease dependence on foreign oil and stabilize aviation fuel costs. Under the partnership, the agencies will bring together their experience in research, policy analysis and air transportation sector dynamics to assess the availability of different kinds of feedstocks that could be processed by bio-refineries to produce jet fuels.

About when will these “non-food” renewable jet fuels become competitive with conventional petroleum-based fuels? Secy. Vilsack did not venture to say. My guess is – quite a long time. Maybe even longer than it takes to make competitive auto fuel out of switch grass, corn stover, and wood waste.

One of my posts from a few months ago, on CEI’s OpenMarket.Org, goes straight to the point, so I recycle it below for your edification and amusement.

Bio-Jet Fuel — The Real $600 Toilet Seat?

The custom-designed $600 toilet seat for P-3C Orion antisubmarine aircraft — often depicted as the epitome of government waste — is an urban legend.

The “seat” was actually a plastic molding that fitted over the entire seat, tank, and toilet assembly, for which the contractor charged the Navy $100 apiece.

However, in the subsidy-driven world of biofuels, government can flush lots of your tax dollars down the gurgler.

DOD’s Quadrenniel Defense Review Report (QDR) crows that in 2009, the Navy “tested an F/A-18  engine on camelina-based biofuel” (pp. 87-88). Camelina is a non-edible plant in the mustard family.

On Earth Day 2010, an F/A-18 taking off from the Warfare Center in Patuxent River, Maryland, became the first aircraft to ”demonstrate the performance of a 50-50 blend of camelina-based biojet fuel and traditional petroleum-based jet fuel at supersonic speeds,” enthuses Renewable Energy World.Com.

At the event, Secretary of the Navy Ray Mabus said: “It’s important to emphasize, especially on Earth Day, the Navy’s commitment to reducing dependence on foreign oil as well as safeguarding our environment. Our Navy, alongside industry, the other services and federal agency partners, will continue to be an early adopter of alternative energy sources.”

Renewable Energy World also reports that the Navy ordered 200,000 gallons of camelina-based jet fuel for 2009-2010 and has an option to purchase another 200,000 gallons during 2010-2012. Sounds impressive, but let’s put those numbers in perspective. In just three months in peacetime, the flight crew of a single vessel — the USS NASSAU, a multi-purpose amphibious assault ship – flew more than 2,800 hours and burned over 1 million gallons of jet fuel.

Neither Renewable Energy World nor the QDR mentions how much camelina-based jet fuel costs. Hold on to your (toilet) seat! According to today’s ClimateWire [June 28, 2010; subscription required] the price is $65.00 per gallon. That’s about 30 times more expensive than commercial jet fuel.

Those who wonder why government can’t just mandate a transition to a “beyond petroleum” future should contemplate those numbers.