Senators put ethanol subsidy back on hit list

A pair of U.S. senators have put funding for a long-standing federal ethanol subsidy back on the budget chopping block just three months after it was given a year extension.

Action by Republican Tom Coburn of Oklahoma and Democrat Ben Cardin of Maryland comes at a time when federal austerity zeal and corn prices are running high, corn supplies are low and accusing fingers are being pointed in various directions by those trying to explain rising food prices.

The Coburn-Cardin plan for zapping a blenders credit of 45 cents per gallon, worth about $5 billion in 2010, also emerges with grain incomes in record-setting territory and with cuts already proposed for such previously popular initiatives as nutrition help for women, infants and children.

The news about ethanol spending did not come as a surprise to Chuck Woodside, Minden-based chief executive of the KAAPA ethanol plant and current national chairman of the Renewable Fuels Association.

"There's always been a tremendous amount of opposition to it," Woodside said as he prepared to head home from the March meeting of the Nebraska Ethanol Board in Lincoln.

Nor did Woodside sound indignant. He and others in the state and national ethanol leadership already are working on a compromise that would cut the subsidy in half as soon as next year.

But "apologetic" wouldn't describe his tone, either.

"The Nebraska economy has benefited from ethanol tremendously over the last few years," he said. "All of the Midwest has."

Furthermore, the blenders credit doesn't go to ethanol producers. It goes to those who blend ethanol and gasoline for retail pumps.

And in national context, "let's take a look at all the motor fuel incentives and, at the same time, look at some of the tax breaks the oil industry has had for many years."

This is not the first time ethanol's consumption of corn has been blamed for rising food prices. And it's not the first time talk of cutting federal support has cast a shadow over the industry at a time of economic challenge.

VeraSun, owner of three Nebraska ethanol plants and more than a dozen others in surrounding states, filed for bankruptcy in 2008 during a spike in corn prices.

Woodside isn't expecting a repeat of problems on a VeraSun scale. One reason is that ethanol is now blended into a much higher portion of fuel sold at the pump.

"And we didn't have that penetration in 2008."

But Ethanol Board Administrator Todd Sneller said the timing for trimming federal support could be better. "Right now it would be difficult," he said, "because of the price volatility that we see for both corn and oil."

On the matter of rising food prices, there was no hint of acknowledgment of an ethanol role coming out of the Thursday gathering of ethanol advocates.

Sneller said what consumers are seeing in food stores has a lot more to do with what it takes to put food in purchase condition and get it to store shelves.

"It's all about energy," Sneller said. "Food costs are tied to energy."

Nebraska's livestock sector, its largest source of agricultural income and its largest corn user, is feeling the effects of higher corn prices and remains opposed to ethanol subsidies in their current form.

Sought out later Thursday, Michael Kelsey of the Nebraska Cattlemen, the state's largest livestock organization, said his members either want subsidies stopped or redesigned so that they only kick in when ethanol is in red-ink rut.

But Kelsey didn't see that as a matter of such urgency that it required Congress to get behind the Coburn-Cardin bill. Cattle feeders are able to utilize the distillers grain left over from ethanol production, and the clock already is ticking on the one-year extension.

"This debate will occur in October, November, December," he said, "whether it occurs now or not."

At some point, those in the state's cattle sector also would like to see a cure for a situation in which American ethanol is being exported at the same time as its producers benefit from the blenders credit, a renewable fuels production mandate and a tariff on imported ethanol.

Despite that three-legged assist, "somehow folks project 800 million gallons in ethanol exports this year."

source: journalstar