You know the yanks are serious about their debit reduction program when they go after the all powerful and seemingly untouchable US farm lobby. Last week the US senate voted to end federal subsidies for ethanol, the combined tax breaks cost taxpayers about $6 billion a year.
The amendment will immediately remove a 45c per gallon tax credit on ethanol-gasoline blend and eliminate a 54c per gallon tariff on imported ethanol, (which comes largely from Brazil). The measure will now be added to a bill renewing a federal economic development program. The prospects for the overall bill are uncertain, but last weeks vote endangers the ethanol tax credit, which would expire at the end of the year anyway, unless Congress renews it.
The debate played out as the White house is looking at all options to reign in government spending (which borrows 40c to every dollar it spends), after the federal government hit the legal borrowing limit of $14.3 trillion.However in a sign that some ethanol subsidies are likely to endure, the Senate also voted to reject a measure that would have eliminated a government program that supports the distribution of ethanol.
Going back to 1985, when the US had a corn crop just shy of 209mmt, total corn use for ethanol was 6.9mmt or 3.3% of the total crop. Total corn production to ethanol then slowly rose until the mid 2000’s when it exploded. Last year with the third largest corn crop in history (316mmt), as much as 124mmt went into ethanol, amounting to an incredible 40% of total corn production.
It is easy to imagine what would happen to feed grain prices if even 100mmt of this was placed into the world export trade annually. Although the ethanol industry has to eventually stand on its own two feet, and ease the drip of government support. What would be more effective in eliminating price volatility (which is the real argument) would be a transparent look at government stocks and detailed reports on growing conditions so no future shocks take the market by surprise like last years ban on exports by Russia.