Today's weekly Crop Progress report from the Agriculture Department, again lowers the estimated condition of the U.S. corn crop, down to 76% poor or average, which is 2% lower than last week. Given the prolonged dryness and heat, this is the 11th consecutive weekly drop in harvest outlook by the USDA, which early on, underplayed the danger, but now can't help but acknowledge the disaster. We now have the lowest rated corn crop, at the time of Summer, since 1988, when 40% of the crop was lost.
Iowa, the leading corn state, is rated as 80% poor to average for its corn crop; with Illinois at 95% poor to average; and Indiana at 91% poor to average.
With the lowered production, and Obama maintenance of the corn-ethanol mandate, over 50% of the entire stricken harvest could be burned for fuel!
Consider the "math." Say that the U.S. corn crop this year, drops to 10.4 billion bushels, because of the national average yield dropping down to 120.7 billion bushels (and it might be far worse), then use for ethanol is mandated to consume at least 45% of the entire crop! The standing Renewable Fuels Standard requires 13.2 billion gallons of corn-based ethanol to be produced in 2012; and 13.8 billion gallons in 2013. This translates into the ethanol sector using about 4.7 billion in 2012; and 4.9 billion bushels next year. Insanity.
This corn-for-fuel diversion, combined with out-of-control speculation in Chicago, means that the so-called "market forces" have ceased working. There is no pretense. The livestock sector is being decimated; the food chain is breaking down. Singular comments are pouring forth to curb corn-for-ethanol, even from the biggest and baddest of the cartels, e.g. by Cargill and Smithfield.
Cut down the ethanol requirement, was Cargill's message last week to the Obama Administration. On July 31, Cargill CEO Gregory Page said on CNBC, that the Renewable Fuels Standard needs to the "addressed." This is the meaning of what he stated in his inimitable markets mumbo-jumbo: "If all of that (demand rationing) is only on livestock or food consumers, it really makes the burden disproportionate. What we see are 3 or 4% declines in supply lead to 40 to 50% increases in prices, and I think the mandates are what drives that price elasticity which I think needs to be addressed."
A week before, CEO Larry Pope, of Smithfield, the world's largest pork producer, wrote a guest column for the Wall Street Journal calling for partially waiving the corn-for-ethanol RFS mandate.