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Increasing the Ethanol `Blend Wall' Will Put More Pressure on Already Tight Commodity Markets According to Two New Studies

Tuesday, June 9, 2009

(American Meat Institute)

If the Environmental Protection Agency (EPA) grants a petition to allow a 50 percent increase in the allowable limits of ethanol in gasoline, livestock, poultry and food producers will face higher commodity costs, according to two new studies released today by Advanced Economic Solutions and FarmEcon LLC. 

 The studies were completed on behalf of members of the Balanced Food and Fuel Campaign and were announced during a press teleconference attended by reporters from Reuters, Bloomberg, Dow Jones, Meatingplace, Meat and Poultry Magazine, Feedstuffs and others.

Barring a change in government support for ethanol, if the EPA allows blends of more than 10 percent ethanol, the Advanced Economic Solutions study projects that by 2015 up to 110 million acres of corn will be planted, constituting the highest number of acres planted since WWII and nearly a 20 percent increase over the baseline. 

 The study, titled Implications for U.S. Corn Availability Under a Higher Blending Rate for Ethanol: How Much Corn will be Needed  and authored by Advanced Economic Solutions president Bill Lapp, also examines the potential for a serious shortfall of availability in the corn market, particularly if the blend wall is raised.

U.S. corn yields have been 7 percent or more below trend roughly one out of every four years.  A 7 percent yield loss would equate to over 1 billion bushels, more than the projected carryout during 2010-2015 in the E10, E12 or E15 scenarios, according to Lapp.

The second study, authored by Tom Elam, Ph.D., is titled Issues with an Ethanol Blend Rate Increase, and focuses on the effects that increasing the allowable ethanol blend levels in motor fuel will have on the price of corn fed to livestock and poultry.  Since corn is the number one input cost for the animal agriculture industry, the study shows the correlations in the cost of meat and poultry to consumers in the future.

According to Elam, U.S. biofuels policies and regulations contain inherent contradictions and have also resulted in significant economic damage to diverse sectors from inside and outside of the energy industry.  Increasing the maximum blend of ethanol in gasoline, combined with higher 2010 Renewable Fuels Standard requirements, will increase cost pressures on both ethanol and food producers. 

To view the Advanced Economic Solutions study by Bill Lapp, go to: http://www.foodbeforefuel.org/files/LappE15June09.pdf

To view the FarmEcon LLC study by Thomas E. Elam, go to: http://www.foodbeforefuel.org/files/Elam%20blend%20rate%20issues%20FINAL.pdf

 For more information on the corn-based ethanol issue, go to www.balancedfoodandfuel.org or http:///

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