Groups Call Food-vs.-Fuel Fight Truce

Ag Unites Behind Ethanol Corn Demand

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Livestock and corn industry group representatives said during the National Ethanol Conference they have moved on from the food-versus-fuel debate. (DTN file photo)

SAN DIEGO (DTN) -- Row-crop farmers and livestock producers have reached a truce in the food-versus-fuel debate, representatives of both sides told an audience at the National Ethanol Conference here on Wednesday.

The run-up in corn prices sparked by the ethanol boom from 2007 to 2010 drove a wedge between then-prospering row-crop farmers and struggling livestock producers. Many livestock farmers went under trying to feed animals with $8 corn, while some row-croppers hauled in record profits.

The situation led to the birth of the fuel-versus-food debate, and the Renewable Fuel Standard became a flashpoint.

Now, representatives of two ag groups previously at odds over the RFS say they have moved on. The reason, they say, is that the 5 billion bushels of corn demand created by U.S. corn-ethanol production is essential for agriculture at a time when comparisons to the 1980s farm crisis are becoming more frequent.

Randy Spronk, managing partner of Spronk Brothers III LLP and past president of the National Pork Producers Council, operates a 250,000-head swine operation and farms about 3,600 acres of row crops near Edgerton, Minnesota.

That operational diversity helped Spronk survive the early RFS years.

"We're coming down to a reset process on inputs," Spronk said. "Last year on the crop side was the worst year in a decade. I'm on both sides. I'm a competitor for corn, and I raise it to be profitable. Through hedging, we've been OK."

A rise in corn prices caught many pork producers and other livestock farmers off guard, Spronk said. Many pork producers were driven out of business by a lack of risk-management plans.

Now, he said, ethanol's market for corn is crucial.

"We're supportive of it (the RFS)," he said. "The industry (pork) survived the quick ramp-up. We're not lobbying either side of it. I'm your customer and your competitor. We're now on the same side promoting profitability on the corn side."

Chris Novak, chief executive officer of the National Corn Growers Association, said hog industry losses in 2009 on the heels of $8 corn were greater than the industry experienced in 1998.

In 1998-1999, there was a 27-month span when falling hog prices cost the industry more than $4.7 billion in farm equity. In November 2009, those losses topped $4.7 billion.

"Livestock farmers looked to the RFS as the driver of that," Novak said.

Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said though expanded ethanol production was largely blamed for woes in the livestock industry, "Mother Nature was to blame for much of the feed expense increases.

"It became an attack on RFS policy when the underlying problem was the weather," he said.

Spronk said the RFS was sold as a policy that is good for all of agriculture.

"Not everybody's ship was able to rise together," he said, "although early on, RFS talk was that prices in corn will go up -- raising ships for everyone. That wasn't the case for many livestock producers who walked away."

ETHANOL ALSO HURT

Dinneen said the rise in corn prices caused in part by the ethanol boom also hurt many ethanol companies.

"There are people who are no longer here because of it," he said.

Spronk said the food-versus-fuel debate resulted from not all segments of agriculture and ethanol having a dialogue.

"On the crop side, I had some of my most profitable years," he said about the ethanol ramp-up. "But there was a strong sense of unfairness among livestock producers."

Dinneen said there is a need to move "beyond the food-versus-fuel canard."

The RFA and other ethanol groups point to food deflation dating back to mid-2016 as corn-ethanol production expanded as evidence the RFS had little effect on food prices.

The U.S. Bureau of Labor Statistics data shows the U.S. is in the middle of food deflation starting last fall and continuing so far in 2017.

FARM BILL

Novak said because it is believed to be unlikely the agriculture economy will improve in 2017, Congress needs to be made aware of the challenges farmers face and address those concerns in a new farm bill.

"We recognize the budget realities that will constrain the next farm bill," Novak said. "We hope Congress understands and looks at the health of the farm economy. Members of Congress listening to constituents get it. The reality is the best help government can give us is better access to trade and foreign markets.

Agriculture is in a much better position than it was in the 1980s, Novak said, although "families are struggling" to secure operation loans.

"What changes this current farm situation?" he said. "At the end of the day, for us farm bill programs will help. But the real problem farmers see is with growth and demand (for commodities). Our promise (as corn growers) is the opportunity for growth in the ethanol sector."

Novak said his group believes the new presidential administration ultimately will be good for agriculture trade.

"President Donald Trump is committed to improving trade," he said. "The commitment of this president to creating markets is solid. A bit of my frustration is some of the deals (opposed by Trump) have been good for American agriculture, including the Trans-Pacific Partnership and the North American Free Trade Agreement."

U.S. agriculture would have benefitted from the TPP because other nations involved currently have restraints on livestock imports that would have been overcome with a deal, according to supporters of the agreement.

"The concern here is we walked away from multi-lateral agreements," Novak said.

EXPORT DEMAND

Spronk said the demand for U.S. agriculture will rely on exports.

"Exports is where we get the last value on anything we sell," he said. "We've become very concerned with trade with China."

With the seeming loss of multi-lateral trade agreements, Spronk said, the industry has turned its attention toward getting a bilateral agreement with Japan to expand pork markets.

In addition, Spronk said there are concerns about how trade will change with countries such as Mexico in light of talk about a border tax. About 40% of U.S. pork production is exported to Mexico, he said.

CHINA MARKETS

However, producers continue to hold out hope they can take advantage of a potentially huge Chinese market.

Novak lauded Trump's appointment of Iowa Gov. Terry Branstad as the new U.S. ambassador to China.

"We know we'll have a champion in Beijing," Novak said.

"Actions China has taken have escalated tensions. We've seen a significant decline in corn and DDG (dried distiller grains) exports to China," Novak said.

In September 2016, China imposed a preliminary antidumping duty of 33.8% against U.S. DDG, as well as a countervailing duty of 10% to 10.7%. At the start of 2017, the Chinese government announced it was taking punitive action against U.S. ethanol imports, increasing tariffs on U.S. ethanol from 5%, to 30% to 40%.

"At some point, these issues are going to need to be addressed," Novak said. "We need President Trump to push people harder to make sure here negotiations are done to increase the free flow of U.S. corn products."

In addition, he said, regulatory reform including on the waters of the United States, or WOTUS, rule is one area where livestock and row-crop producers agree.

"By putting government closer to the farm, it creates challenges to farmers to maintain their operations," Novak said. "WOTUS is probably the top issue for us. Reforming biotech regulations that gets EPA moving products through the system quicker is important. Those things help us be more productive and to reduce the costs of production."

Todd Neeley can be reached at todd.neeley@dtn.com

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Todd Neeley