NCGA Strongly Opposes Texas Governor’s RFS Waiver Request (4-25-08)

The National Corn Growers Association (NCGA) voiced strong opposition today to Texas Gov. Rick Perry’s request for a waiver from the Renewable Fuels Standard (RFS). The request is unjustified and, if granted, would result in steeply higher fuel prices for the nation’s drivers. NCGA also said it is highly unlikely that a waiver from the RFS would result in lower feed costs.

“If granted, the waiver request made by Gov. Perry today will hurt—not help—U.S. consumers by increasing fuel costs and sending a signal to farmers to plant less grain,” said NCGA President Ron Litterer. “A waiver from the RFS would undoubtedly result in higher gasoline prices and it seems very improbable that grain prices or food prices would be reduced."

A study released this week by the Center for Agriculture and Rural Development at Iowa State University found that, “the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case.”

For Texas drivers, who paid an average of $3.41 per gallon of regular unleaded gasoline last week, this means gas prices in the range of $3.70 to $3.80 per gallon.

Given record global demand for corn, a waiver from the RFS would have little or no effect on grain prices for livestock and poultry feeders, Litterer said. Speculative investment in commodity futures markets, record demand for U.S. grain exports, heightened U.S. and global feed demand, and weaker than expected grain crops in Asia and Australia are among the other factors that must also be considered when looking at current grain prices.

In fact,a recent study by Texas A&M University —requested by Gov. Perry’s office—found that, “Relaxing the RFS does not result in significantly lower corn prices.” The waiver request may actually have the opposite effect on corn prices.

“This waiver request could potentially send a signal to the corn market that demand from the ethanol sector is not a sure thing,” Litterer said. “The response from farmers could be fewer planted acres of corn and higher corn prices.”

The Texas A&M study also found that “corn prices have had little to do with rising food costs.” This finding is corroborated by recent studies by the U.S. Department of Agriculture’s Economic research Service, Kansas City Federal Reserve, and other third parties.

Food prices rose only marginally in 2007 and modest increases are expected in 2008. Food inflation tallied 4 percent in 2007, compared to the 25-year average of 2.9 percent. This means $100 worth of groceries in 2006 cost $104 in 2007, as opposed to the $102.90 it would have cost under normal inflation—a net increase of 1.1 percent.