Eastern Colorado corn growers concerned about proposed cuts to ethanol subsidies
July 17, 2011
Kevin Schmidt can’t shake off his sense of uncertainty when pondering the U.S. Senate’s recent efforts to rein in the government’s deficit.
“It’s definitely a cause for concern,” said the 56-year-old farmer from La Salle, referring to a deal last week that will end on July 31 a 45-cents-per-gallon tax credit toward ethanol production.
The decision to end the tax credit five months before the end of the year, which in itself saves the government $2 billion, is now in the hands of the House of Representatives.
Schmidt and other local corn producers and experts expressed little doubt that the measure will hurt the price of a crop that covers more acres in Weld County than any other.
“It’s a good-sized issue that has potential to affect the bottom line of agriculture in a big way,” said Schmidt, who plants about 300 acres of corn each year on the land he’s farmed his entire life. “The price of corn is definitely my immediate concern. That’s where I believe it could affect us the most.
“In a year where it looks like we have a crop that could be profitable, this decision could take that out from under us. We’ve already seen corn drop from $7 per bushel back in December to about $6.25 now, and at least part of that was caused by ethanol subsidies being under fire.
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“With this bill, who knows where prices will go from here?”
Mark Sponsler, chief executive officer for Colorado Corn based in Greeley, has similar concerns.
“This is a crop where prices are already volatile,” he said of corn, noting that 26 percent of the crop harvested in the U.S. goes into ethanol production.
Sponsler said it costs a farmer $811 per acre of corn, from planting to harvest. He noted that if yields are 200 bushels per acre – a “solid” crop for Weld County – the price of corn would have to be $4.06 per bushel for the farmer just to break even.
“Who knows where the price is going to be in the near future?” he said. “It definitely leaves me concerned for our local farmers.
“Production could fall off, as well.”
Stephen Koontz, an associate professor for Colorado State University’s Department of Agriculture and Resource Economics, believes corn prices will take a hit, but not as drastic as what farmers might predict.
“The bottom line is that this tax credit isn’t causing demand for ethanol,” Koontz said. “We still need ethanol for blending into gas.”
Koontz said the other alternative for gasoline blending is using methyl tert-butyl ether (MTBE), an additive that has seen its use decline in the U.S. due to environmental and health concerns.
“I’m guessing that ending the tax credit will put some financial pressure on ethanol plants and will soften the corn market a little bit. But I’m not thinking this is as dire a situation as corn producers might think.”
U.S. Rep. Cory Gardner, R-Colo., was unavailable this week for comment regarding the bill. Rachel Boxer, a spokeswoman for the congressman, said Monday that Gardner hadn’t yet seen the final language of the bill.
While local corn growers fear for the future, ending the 45-cents-per-gallon tax credit doesn’t have personnel at nearby ethanol plants worried.
Dan Sanders Jr., general manager at Front Range Energy in Windsor, said most of the tax credit was going to petroleum companies anyway.
“Although the name of the tax credit refers to ethanol, those dollars were going to the companies who were blending the ethanol, which 99 percent of the time is the oil companies,” he said. “I have no problem seeing this bill terminated, because it was giving ethanol a black eye it didn’t deserve.
“Ethanol was seen as this renewable energy source that could only survive with government funding, when in fact ethanol plants weren’t even getting that money.”
Instead of using the $2 billion that would have gone to ethanol production entirely for deficit reduction, the new Senate bill allocates $1.3 billion to deficit reduction and uses $668 million to pay for service station blender pumps that distribute ethanol, ethanol storage tanks and efforts to produce ethanol from sources other than corn, as well as plug-ins for electric cars and natural gas development.
“At least with this new bill, we have money helping us get ethanol to the consumer,” said Dave Kramer, general manager at Yuma Ethanol. “That’s the main goal.”