August 28, 2012 / 4:50 PM / 7 years ago

US ethanol output to drop 10 pct as price rises-Think tank

* Record corn prices will discourage biofuel output

* Drought sparks calls to relax mandate to use ethanol

* Ethanol industry says output this year is down too

By Charles Abbott

WASHINGTON, Aug 28 (Reuters) - U.S. ethanol production will fall by 10 percent in the coming year as rising prices from the drought cut exports in half, a University of Missouri think tank forecast on Tuesday.

The Obama administration is weighing whether to relax a requirement to use corn-based ethanol in gasoline as meat and dairy farmers complain that demand for corn-based biofuels is driving up the cost of food.

But the record-high corn prices caused by the worst drought in half a century will cause a 10 percent decline in ethanol production next year, according to the Food and Agricultural Policy Research Institute, or FAPRI.

“Higher ethanol prices contribute to sharply reduced ethanol exports and increased imports, but domestic ethanol consumption declines by just 2 percent,” said the newly updated FAPRI forecast.

Ethanol output will fall to 12.4 billion gallons next year compared to 13.8 billion gallons this year, according to the forecast. Exports would drop to 505 million gallons from nearly 1.1 billion gallons this year.

Virginia Governor Bob McDonnell joined governors of seven other states — Texas, Georgia, New Mexico, Arkansas, North Carolina, Maryland and Delaware — in asking the Environmental Protection Agency for relief from the so-called ethanol mandate. They say the Renewable Fuels Standard is disrupting livestock production and causing severe economic harm.

The so-called ethanol mandate guarantees use of 13.2 billion gallons of ethanol in 2012 and 13.8 billion gallons in 2013. An ethanol trade group estimates production will total 13.4 billion gallons during 2012, a reduction from earlier estimates.

“It could be lower than that depending upon market conditions through the rest of the year,” said the Renewable Fuel Association. The trade group had no forecast for 2013.

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