Analysis: U.S. bankers say, love or hate it, ethanol here to stay

Wed Sep 5, 2012 12:45pm EDT
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By Christine Stebbins

CHICAGO (Reuters) - Before the U.S. biofuels boom took off in 2007, the food vs. fuel debate raged: can we afford to use corn for ethanol in a starving world?

Five years later, farm bankers ask: can we afford not to?

"Ethanol demand is the linchpin of the current pricing model that we have," said Michael Swanson, agricultural economist at Wells Fargo, the largest commercial bank lender to U.S. farmers. "It's a completely different question whether it's right or wrong."

Amid the worst drought to hit the Midwest in a half century, corn prices have nearly doubled. Howls of protests have come from livestock feeders. The government has forecast food inflation to rise.

Governors in big livestock states like Texas and North Carolina are now demanding the Obama Administration suspend the 2007 mandate - signed into law by Republican George W. Bush -- to produce huge amounts of ethanol from corn.

The Environmental Protection Agency must respond in 90 days. But don't hold your breath, bankers say.

"I don't see the Administration making any big move on this with the election so close," said John Blanchfield, senior vice president for agricultural and rural banking at the American Bankers Association. "A waiver will make as many people unhappy as it will make others happy."

Interviews with bankers and economists say the debate about corn to make fuel has evolved along with the financial stakes.   Continued...