USDA loans to ethanol plants is bad business

By Andy Groseta
Friday, October 24, 2008 2:03 PM CDT

The National Cattlemen’s Beef Association sent a letter to United States Department of Agriculture Secretary Ed Schafer this week expressing disappointment at his comments outlining Rural Development assistance for ethanol plants hurt by high corn prices. In remarks made in Des Moines, IA on Oct. 17, Shafer stated that, “There’s going to have to be some credit applied to companies to buy some lower-priced corn to blend with their higher-priced corn.”

These higher corn prices are due in large part to extensive federal subsidies for the ethanol industry. The plants in question hedged on the futures markets and are now seeing the consequences of risky business decisions. Schafer acknowledged the questionable business practices, saying, “There is some pressure out there by companies that have gotten away from their focus on producing ethanol and started speculating on the commodity markets, and that’s hurt them.”

Cattle producers, meanwhile, have been facing the hard realities of rising corn prices for quite some time, and have suffered a record $1.5 billion in cattle-feeding losses in just the first six months of 2008. In the letter sent to Secretary Schafer, NCBA explained that over the past two years, “producers have seen their operating costs dramatically increase due to government support of the corn-based ethanol industry… These costs are now contributing to lower calf and feeder cattle prices.”

“Much has been made of the importance of ensuring energy security for the United States, which is a worthy objective and one the membership of NCBA fully supports. However, continuing to subsidize the ethanol industry at the expense of other agricultural sectors risks our food-production capacity. While energy independence is an important goal, it must be balanced with one of our strongest suits: our ability to feed Americans and the world.

Corn-based ethanol is a mature technology that should be able to compete on the open marketplace without government intervention to prop it up. While we appreciate that the funds in question are not new money or exclusively available to biofuel plants, the ethanol industry’s need for increased funding after years of subsidies highlights an underlying fault in USDA’s approach to food and fuel policy.

America’s cattle producers are not asking for a bailout, but we do ask for the chance to compete for corn and commodities on a level playing field, without further government intervention.

Andy Groseta is a rancher from Cottonwood, Ariz., and president of the National Cattlemen’s Beef Association.

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