US ethanol reform may hitchhike on must-pass bill

* Biofuel supports due to expire at end of the year

* Ethanol groups concur on new version of supports

* Variable credit could replace 45-cent fuel tax credit

Reform of biofuel subsidies that cost $6 billion a year could hitch-hike its way to enactment on a must-pass spending bill, as said by leaders of two ethanol trade groups.

hey said the industry generally agrees on reforms that would replace the 45-cent-a-gallon tax credit that is the major incentive to produce corn-based ethanol, the major biofuel now being produced.

The ethanol tax credit, as well as a tariff on imported ethanol, and a $1-a-gallon credit for biodiesel expire on Dec 31 unless Congress intervenes. Lawmakers allowed a one-year extension last December.

"We've got to be ready for whatever opportunity comes down the road," said Tom Buis of the trade group Growth Energy, listing federal funding bills as an example of a bill that could include an ethanol rider.

BLENDER PUMPS AND FLEX-FUEL CARS
Reforms would include market-opening steps such as financial support for installation of "blender" pumps that dispense fuel that is up to 85 percent ethanol and a requirement for automakers to produce "flex-fuel" vehicles that can burn it.

Bob Dinneen of Renewable Fuels Association said one possible reform of the ethanol tax credit would be to convert it to a variable credit that would decline as oil prices rise. Ethanol is more profitable when crude oil prices are high.

Buis and Dinneen told the North American Agricultural Journalists meeting that details of the proposal may be released soon. Elements of it are under discussion with lawmakers and administration officials, they said. The united viewpoint was in contrast to disagreements within the industry last year on how, or if, to restructure federal supports.

President Barack Obama supports biofuels as one of the ways to reduce U.S. reliance on imported oil. In a March 30 speech, Obama pointed to "tremendous promise" in ethanol and next-generation biofuels. He said biofuels incentives should be revised "to make sure they meet today's challenges and save taxpayers money." [Id:nN30183094]

Ethanol output is forecast for 13.75 billion gallons this year, 10 percent more than the target set by law.

Foodmakers, environmentalists, livestock producers and deficit hawks say incentives cost too much and drive up the cost of livestock feed.

ECONOMISTS SAY LAND, MEAT PRICES ON THE RISE

Also at the NAAJ meeting, economist Jason Henderson of the Kansas City Federal Reserve Bank said a surge in farmland values continued in the first three months of this year. Prices are up by 25 percent in one year in some locations.

"The market is really hot right now," said Henderson.

Joe Glauber, chief economist at the Agriculture Department, said beef, pork and milk prices are forecast to rise by more than 10 percent this year from 2010 levels.

Higher beef, pork and dairy prices would put pressure on food price inflation forecast for sharp 3.5 percent this year. Glauber said the impact would be most acute in the latter half of the year. (Reporting by Charles Abbott; Editing by David Gregorio)

source: reuters