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September 20, 2012

Drought Is the Issue, Not the RFS

For more information on Newsline, contact: Kari Barbic, Media Specialist, American Farm Bureau Federation, karib@fb.org.

With the drought’s effects an ongoing challenge for all of agriculture, American Farm Bureau Federation Economist Matt Erickson explains how renewable fuels could be a helpful resource in a time of hardship. AFBF’s Miranda McDaniel reports.
McDaniel:Harvest is here but there is less corn to go around for feed and other uses. Supply concerns have fed a debate over the Renewable Fuels Standard, which, according to AFBF Economist Matt Erickson, is more of a drought issue than a renewable fuels issue.
Erickson:We need to first realize the situation agriculture has been over the course of this year. If we remember back in the spring, farmers across all or much of the Corn Belt experienced excellent planting conditions and our first corn yield estimate was 166 bushels an acre. Many analysts, including myself, could have given scenarios of corn at about $4 a bushel.
McDaniel:But in the summer months the drought took its toll on the crop. The latest Agriculture Department estimate pegs yields at just 123 bushels per acre. Corn prices have increased more than 60 percent causing concern for certain sectors of agriculture. 
Erickson:Livestock producers are experiencing the challenges of record-high feed costs, there’s no doubt about that, and we continue to have discussions on finding answers to deal with these challenges. But the fact of the matter is, this is a drought issue and it’s not a RFS issue. Renewable fuels create jobs for rural America, makes our country more energy-independent and provides a good, clean, home-grown fuel that we can use domestically to which we rely on farmers to produce.
McDaniel:And fuel prices are hitting farmers almost as hard as the drought itself. Erickson says farm diesel is approximately $3.70 per gallon, which is 6 percent higher than in 2011 and 37 percent higher than 2010. He says farmers and ranchers will need to become more efficient to keep fuel costs at a minimum.
Erickson:I don’t think you can really hide away from fuel cost, energy cost in general.We all know that agriculture is a very sensitive market to energy, it’s very highly energy intensive. But one thing that farmers and ranchers could do is just become more efficient. If they’re taking their product to the market transportation cost will have to be considered when we look at the overall bottom line. Is it more affordable for me to go to destination X or destination Y?
McDaniel:Miranda McDaniel, Washington.
McDaniel:We have two extra actualities with AFBF Economist Matt Erickson. In the first extra actuality he explains current oil prices. The cut runs 23 seconds, in 3-2-1.
Erickson:Weekly oil prices over the past month have been in the mid $90 per barrel range. But, if we look over the last couple weeks, this just shows how much oil prices can fluctuate in a very short period of time. Last week oil prices creeped up to about $100 per barrel. Now we’re seeing crude oil prices at around $92 per barrel when we have more supply we’re actually in turn decreasing price and in turn increasing quantity.
McDaniel:In the second extra actuality he explains what to expect when it comes to fuel prices moving forward. The cut runs 30 seconds, in 3-2-1.
Erickson:I would expect oil prices to continue to stay in the $90 to $100 per barrel range for the rest of this year into next. I think the bigger question that we run into is what’s going to happen here in the next couple months and into next year? And I want to keep everyone in tune with three things that could be happening this year and what to watch for over the next year or so. The first one is geopolitical uncertainty in the Middle East. The second one is, will the United States find a way and come up with a plan to reduce its over 16 trillion dollar debt? And third, the U.S. economy in general.
McDaniel:Newsline is updated Mondays and Thursdays by 5pm eastern time. Thank you for listening.

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