WASHINGTON -- The flooding and record heat that have combined to shrink this year's corn crop are feeding new calls from livestock producers to weaken the government's ethanol mandates.

Producers told the House Agriculture Committee that tightening grain supplies are driving up feed costs further and threatening to push many poultry farms and others out of business.

"We have serious, immediate concerns about the availability and cost of feed ingredients caused by the mandated use of corn-based ethanol," said Ted Seger, president of Farbest Foods Inc., a turkey producer in Indiana.

More than 20 percent of the chicken industry, as measured by production, has been sold to foreign-owned companies because of bankruptcies in the U.S. industry over the last three years, he said.

The Agriculture Department this week estimated that farmers will harvest 12.5 billion bushels of corn this year, the third-largest crop on record, but that was 3 percent less than the USDA had forecast a month earlier.

With corn supplies tightening, the USDA also estimated usage for feed would be reduced. About 4.7 billion bushels of this year's crop is expected to be used for livestock feed, down from 5 billion bushels for the 2010 harvest.

The price of corn is the major cost of raising livestock, and producers have been trimming herds and flocks as a result of price increases, boosting retail meat prices.

Steve Meyer, an Iowa economist who advises the livestock industry, warned that a bigger crunch could come if there is a widespread drought and crop failure. A 12-percent drop in corn production, roughly half as large as what happened during a drought in the 1980s, would cut the harvest under 12 billion bushels, said Meyer, who testified on behalf of the National Cattlemen's Beef Association.

"We're living on borrowed time from a sometimes-fickle Mother Nature," he said.

He said Congress should provide for an automatic waiver of the annual ethanol mandates in case of a crop failure.

The ethanol industry argues that the mandates are needed to assure investors that there will be a market for the biofuel and that market speculation has a played a major role in driving up the price of corn.

Waiving the ethanol mandates "would lead to inconsistent regulation and sends a bad message to the investment community and producers seeking financing for first-of-its-kind technology," said Rob Skjonsberg, vice president of public policy and corporate affairs for Poet LLC, a leading ethanol producer based in Sioux Falls.

The ethanol industry also argues that livestock producers benefited from buying grain that was kept artificially cheap because of federal crop subsidies that encouraged excess corn production. Federal ethanol policies resulted from corn growers' attempts to find a new market for their crop, said Rep. Steve King, R-Ia.

"When things are bad, when things are hard, you start to generate new ideas to try to solve that situation. Ethanol was one of those," King said.

About one-third of the corn that is sold for ethanol production winds up as a byproduct known as distillers grains that can substitute for corn in livestock feed, but poultry and hog producers say they can use the product only in small amounts.

The government promotes the production of corn-based ethanol in three ways -- the usage mandates as well as a tariff on imported ethanol and a 45-cent-per-gallon subsidy to refiners who blend the biofuel with gasoline. The subsidy and tariff are scheduled to expire at the end of the year, but the mandates would continue, growing to 15 billion gallons a year by 2015 before leveling off.

source: usatoday


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