Senate votes to extend ethanol tax credit

Hoard's Dairyman: 

Senate votes to extend ethanol tax credit

Thu, 12/16/2010

Yesterday, the U.S. Senate approved (81 to 19) the big tax package that extends Bush-era tax rates and includes a number of other measures. One of those measures would extend the Volumetric Ethanol Excise Tax Credit (VEETC) for one year at the same 45 cent-a-gallon rate. There had been talk of reducing the so-called blenders tax credit to 36 cents a gallon but no action was taken on that proposed amendment.

The Senate also bill also keeps the ethanol import tariff at the current 54 cents a gallon.

The bill now will move to the House for its approval.

The ethanol community lauded the Senate action, of course. The lobbying had been intense. In the end, groups such as the Renewable Fuels Association pitched extension of the tax credits and tariff as a "jobs" bill, saying that any legislation harmful to the ethanol industry would result in many job losses at a time when unemployment is high.

Already, there had been a change in the tone of support among groups that support renewable fuels. There had been talk of taking some of the "tax credit" money, an estimated $6 billion-a-year impact on the Treasury, and directing it toward subsidizing an improved ethanol transportation and distribution system. The money would be used for pipelines and to encourage gasoline companies to install more pumps dedicated to ethanol blends.

So, the heavily subsidized ethanol industry may well continue to put upward pressure on the price of corn and all other feeds priced off of corn. In an analysis released last month, the Center for Agricultural and Rural Development (CARD) at Iowa State University projected the impact of three different ethanol scenarios on corn prices during 2011. If the EPA mandate, tax credits, and the import tariffs all were in place, which seems more likely now, corn would be $5.21 a bushel. If there was only the ethanol mandate in place, corn would be $4.86. If there were no ethanol programs in place, corn would be $3.84.

The tax package also would reinstate the $1-a-gallon biodiesel tax credit that had expired at the end of 2009. Several biodiesel plants had shut down this year due to the impact of the loss of that tax credit.

At the CBOT, March corn closed yesterday up just over 2 cents per bushel to $5.86. January soybean changed only slightly and closed at $346.40 per ton.