Source: Richard Lobb, MEATINGPLACE, 12/22/11

Corn users could see some softening in prices if the tax credit supporting the ethanol industry – the Volumetric Ethanol Excise Tax Credit (VEETC), the “blenders’ credit” – expires on schedule at the end of the year, according to an economist who follows the ethanol market closely.

“With loss of the VEETC incentive of 45 cents a gallon of ethanol added to motor fuel, we should see demand soften and more price competition among the plants emerge,” said Tom Elam of Farmecon.com.  “It’s going to be hard to pin down a number, but something in the range of 20 cents a bushel or somewhat higher is likely.”

Virtually all of the fuel ethanol in this country is distilled from corn.  Production of ethanol and by-products is expected to use up 37 percent of the nation’s corn supply in the 2011-12 crop year, according to the U.S. Department of Agriculture.

VEETC can be claimed by fuel companies and others who add ethanol to motor gasoline.  The credit nets the fuel industry $500 million per month in 2011, Elam said. Barring last-minute action by Congress as it races towards adjournment for the holiday break, the credit will expire on Dec. 31.

Ethanol distilleries have been running flat-out as blenders seek to make maximum use of the credit before it lapses, Elam said.  According to the weekly reports of the U.S. Energy Information Administration, production of ethanol in the last month has been running more than two percent ahead of same period in 2010.

Without the blenders’ credit, the fuel industry will buy only the amount of ethanol mandated by the federal Renewable Fuels Standard, which sets the minimum amount of ethanol and other renewable materials that must be added to motor fuel every year, Elam said.

“While we are currently producing at a rate of more than 14 billion gallons of ethanol per year, the 2012 mandate is 13.2 billion gallons,” he said.  “Also, due to the 2011 excess production, the blenders will be able to carry over some credits that they can use to offset 2012 obligations. The effective mandate could be under 13 billion if they use those,” potentially further softening the demand for corn, he said.

More than 70 members of Congress, both Republicans and Democrats, signed a letter to Congressional leaders earlier this month urging them to "allow ethanol subsidies set to expire to do just that and to resist calls to expand or create new ethanol subsidies in the eleventh hour."

The Renewable Fuels Association (RFA), which represents ethanol makers, spent nearly $259,000 in the third quarter on lobbying for extension of the credit among other issues, according to the Associated Press.

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