For Family Farmers, Ethanol Mandate Poses a Threat

May 2, 2014

An unwavering commitment to family tradition has kept John Burkel doing what he loves most – farming turkeys.

Burkel’s grandfather, an accomplished farmer himself, taught him how to manage the farm and market the birds, and Burkel is the fourth generation of turkey farmers in his family. Today, he raises more than 180,000 turkeys in northern Minnesota, runs a large turkey-farming co-op comprising 25 families, and sits as the chairman of the National Turkey Federation.

But recent actions in Congress and lobbying by the ethanol industry are threatening to destabilize the profession on which Burkel’s family has depended for so long. The government-mandated Renewable Fuel Standard (RFS) is a regulation which siphons off approximately 40 percent of American corn crops to be blended in ethanol as a way to encourage renewable fuel production. For poultry and livestock farmers, this creates a serious problem: the market price of corn – the necessary staple in animals’ feed – experiences tremendous unpredictability resulting from changes in the crops supply and price due to the mandate.

“We’ve got a situation where the mandate creates this false demand for ethanol, and it’s a lot more difficult for the meat producer and the livestock producer to manage those prices and manage the expenses side,” Burkel said. “That’s been the hardest part.”

Until 2005, a $4 bushel of corn was considered expensive, Burkel said. But when the RFS kicked in that year, he noticed a change in his prices – not only did costs initially creep up, but the market became increasingly unpredictable. “The real problem with the RFS, at least in my mind, is the volatility,” Burkel said. After the first RFS in 2005, prices jumped from $2.5 a bushel to $5. Prices then skyrocketed to $8 per bushel during a drought season in 2012 before settling back to $4.

For an industry already riddled with uncertainty – droughts, changes in tastes, consolidations – the mandate is only making things trickier for American poultry and livestock farmers.

While recent droughts have reduced farm incomes, the price of farmland across the country is rising rapidly — driving family farmers out of the business. In the Great Plains, farmland prices have almost tripled over the past half-decade. In Iowa alone, the value of farmland in 2012 was almost 24 percent higher than it was in 2011. This was the third consecutive year that values rose by more than 15 percent. Corn ethanol was responsible for raising the value of U.S. farm assets by about $2.5 trillion in 2012.

“You have the uncertainty in agriculture with weather as well as the markets,” said Keith Williams of the National Turkey Federation. “When you add on top of that a mandate from the government that says: ‘OK, this is the amount that will need to be blended into gasoline,’ then you have an additional aspect to this that is a damper.”

The ethanol industry has argued, however, that poultry and livestock farmers can use ethanol byproduct to feed their animals for cheap. The byproduct, known as DDG, is relatively inexpensive with a stable price point of $85 to $110 a ton, according to the USDA. But the concern of animal farmers is that DDG lacks many of the essential nutrients found in natural corn feed, while several animal species find it difficult to digest.

“Maybe cattle, which have several stomachs, can digest DDG,” Williams explained, before warning that the product was not suitable for every farmer. “[But] it does not have the same nutritional value, and there is only so much a turkey will take of DDG even when it’s mixed into its feed.”

Both Burkel and Williams, despite their opposition to the RFS, are hoping that a compromise can be reached between corn farmers and livestock farmers. After all, said Williams, farmers rely on each other for business and fraught relationships will only hurt the industry as a whole.

“We are very supportive of corn farmers,” Williams said. “We need them to be in business, but we need a reliable source and they need a more reliable expectation of what can happen with their crop rather than being at the mercy of the federal government.”

Farmers who raise livestock and corn, like Randy Spronk with the National Pork Producers Council, have taken a more nuanced approach to the RFS. Spronk is arguing for moderation: While the RFS has increased the volatility of corn prices dramatically, he says, we should also beware of abolishing it completely, because the risk of doing so may swing the corn commodities even more drastically.

The solution may lie in reform that leans on the significant power of compromise.

“I think part of the problem is the polarization of both ends,” Spronk said. “What we need is a moderate middle that has not been seen over the last several years to really weave the path that everybody could live with, rather than picking somebody as a winner and somebody as a loser.”