Impact of U.S. ethanol waiver would arrive year later: think tank

The governors of seven states in the U.S. South and Southwest have asked for a one-year waiver of the ethanol mandate on grounds it drives up feed costs and is bankrupting cattle, hog and poultry farmers. The corn harvest, now under way, is forecast to be smallest since 2004 because of drought.

The Environmental Protection Agency is not expected to decide before mid-November.

A waiver would provide little relief in the first year, said the University of Missouri think tank, a conclusion reached by other analysts. It said corn prices could drop by 3 percent in the following year, corn for livestock feed would be up by 2 percent and ethanol output would drop by 7 percent.

"Extra biofuel uses in one year typically can help to meet the next year's mandate," said the think tank, the Food and Agricultural Policy Research Institute. It said biofuel makers could apply ethanol production during 2013 toward meeting up to 20 percent of the higher ethanol mandate coming in 2014.

"If this practice is permitted, a waiver in 2012/13 could make it far easier to satisfy the (mandate) in 2013/14, when limits on E10 blending make mandate compliance difficult," said FAPRI, referring to the usual blend rate of 10 percent ethanol and 90 percent gasoline.

If the carryover is not allowed, "the direction of second-year effects are reversed," said the think tank.

The U.S. gasoline supply is nearly saturated at a 10 percent blend, making it difficult for retailers to comply with the ethanol mandate. The squeeze is expected to tighten as the mandate rises in coming years.

The so-called Renewable Fuels Standard guarantees ethanol a share of the gasoline marker for cars and light trucks. The mandate for this year is 13.2 billion gallons, rising to 13.8 billion gallons in 2013 and peaking at 15 billion gallons from 2015.

(Reporting By Charles Abbott; Editing by M.D. Golan)