Chatter: Ethanol Mandate is Going to be Cut
Silver Bear Cafe
August 4th, 2012
Reader Views: 384
byÂ Dan Norcini
I mentioned a short time ago that talk was growing – scratch that – extreme disgust was growing – among livestock and poultry producers – concerning the federal mandate for ethanol. In the midst of the most extreme drought to hit the US corn and bean growing region since 1988, supplies of corn have been shrinking to very tight levels. However, a good deal of this can be attributed to the federal mandate requiring ethanol blended gasoline. Some of you may know, but this ethanol comes mainly from distilling corn.
As a matter of fact, approximately 40% of all corn demand goes to this boondoogle. While the by product of ethanol demand, DDGS, can be fed to livestock, the facts are that without this mandate, a large share of the corn grown in this nation would be otherwise available for feed use, something that has not been lost on the nation’s livestock and poultry producers who are suffering extreme hardships as they watch their feed costs escalate into the stratosphere, destroying their profits in the process and threatening their very livelihoods.
I suspect that this the level of this outrage is going to continue to increase in the weeks and months ahead. I also suspect that more and more pressure is going to be brought to bear upon the policy makers to temporarily rescind this mandate to alleviate the tightness in the supply situation for corn.
The question is whether this comes prior to the election or after the election. Keep in mind that Senators and Congressmen from farm belt states have generally been in favor of this mandate as it has, in the past, helped push demand higher for corn and thus favored a large number of their constituents. However, Senators and Congressmen from those states with large concentration of beef, dairy, pork and poultry producers have tended to be on the opposite side of this issue.
This could very well turn out to be a tremendous factor in determining when the bull market in corn comes to an end. A temporary rescinding of the mandate would lead to a decent sized drop in the price of corn and would tend to lessen some of the recent upward price pressures on the entire food complex.
We will continue to monitor this situation and keep the readers posted.
Dan Norcini is a professional off-the-floor commodities trader bringing more than 20 years experience in the markets to provide a trader’s insight and commentary on the day’s price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal’s commodities section as well as CBS Marketwatch where his views on the gold market can often be found. He is also a regular guest on the growing King World News network an internet based radio site.
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