I don’t know what the president of Smithfield Foods expected when he wrote an op ed piece in the Wall Street Journal blaming ethanol for high corn prices. But I bet he didn’t anticipate getting slammed on the floor of the U.S. Senate for his trouble.
Sen. Chuck Grassley, the Iowa Republican who’s known for holding nothing back when someone talks bad about his state’s corn growers, blasted Smithfield CEO Larry Pope in a speech in which he referred to Pope as “Henny Penny,” the character in the children’s folk tale Chicken Little.
“Every time Smithfield has to pay a little more to America’s corn farmers to feed his hogs, Mr. Pope starts up with the same argument that the sky is falling and it’s all ethanol’s fault,” said Grassley in remarks on the Senate floor on Wednesday.
“Mr. Pope’s opinion piece in the Wall Street Journal might lead some to believe that he’s very knowledgeable about the ethanol industry. But there are many areas where he’s not. He continues to perpetuate the myth that ethanol production consumes 40 percent of the U.S. corn crop.”
Grassley said Pope did the same thing back in April of 2010 when commodity prices were rising. “At that time, he perpetuated a smear campaign and blamed ethanol in an attempt to deflect blame for rising food prices while boosting Smithfield’s profits. And now he’s at it again.
“Everyone with a basic understanding of a livestock farm, a corn kernel or an ethanol plant knows that’s not true. According to USDA, 37 percent of the corn supply is used in producing ethanol. But the value of the corn does not simply vanish when ethanol is produced. One-third of the corn re-enters the market as a high value animal feed called dried distillers grains.”
Many hogs raised by Smithfield are fed a diet containing DDGs, the senator said, but Pope appeared unaware of its existence. When the distillers’ grains are factored in, 43 percent of the corn supply is available for animal feed. Only 28 percent is used for ethanol.
In the Journal op ed, Pope said that absent the ethanol mandate in the Renewable Fuels Standard, this year’s drought-depleted crop would have been more than enough to meet the requirements for livestock feed and food production.
“I’d like to ask Mr. Pope, why do you think that is?” said Grassley. “Why did farmers plant 96 million acres of corn this year? Why have seed producers spent millions to develop better yielding and drought resistant traits? The answer is simple: Ethanol.
“If not for ethanol, farmers wouldn’t have planted 96 million acres of corn this year. Without ethanol, I doubt we’d have seen investment in higher yielding and more drought tolerant corn plants.”
For many years, the senator noted, cattle and hog producers paid about $2 per bushel for corn. Corn farmers stayed in business despite those low prices – which were often below the cost of production – because of government subsidies such as the marketing loan and loan deficiency payments. Cattle and hog producers boasted that they didn't need a government program while benefitting from subsidized grain prices. Now that corn prices have risen, they want the government to step in and partially dismantle a program that has brought higher market incomes and stability to many rural communities.
This is not a passing matter for many farmers in the South who have come to rely on corn as a mainstay for their operations. Ten years ago, they wouldn’t have given a second thought to corn prices. Today, it is deadly serious business.
Grassley said a recent study by Professor Bruce Babcock at Iowa State University found that a complete waiver of the Renewable Fuels Standard might reduce corn prices by only 4.6 percent. The report states, “The desire by livestock groups to see additional flexibility in ethanol mandates may not result in as large a drop in feed costs as hoped.” And, “…the flexibility built into the Renewable Fuels Standard allowing obligated parties to carry over blending credits from previous years significantly lowers the economic impacts of a short crop, because it introduces flexibility into the mandate.”
“The drought is enormous in both scale and severity,” says Grassley. “But we won’t know the true impact until September, when the harvest begins. The latest estimates from USDA indicate an average yield of 146 bushels per acre. That would result in a harvest of 13 billion bushels. This would still be one of the largest corn harvests.
“I would suggest that those claiming the sky is falling withhold their call for waiving or repealing the Renewable Fuels Standard. It’s a premature action that will not produce the desired result. And it would increase our dependence on foreign oil and drive up prices at the pump for consumers."