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daniel looker

Ethanol tax credit

We hear that a 45 cent tax credit may still have a chance of being included in the tax compromise bill soon  to be voted on in the Senate. Senator Tom Harkin (D-IA) said earlier today that he wants support for more flexible fuel vehicles and blender pumps if the tax credit is extended at a lower rate, most likely 36 cents a gallon. Efforts to do that may have failed. If so, some ethanol backers in the Senate are said to be insisting on 45 cents. 


Do you think this is a big deal to the ethanol industry -- if it's 45 cents or 36? Several independent economists at land grant universities think the industry could survive without any tax credit at all. My reporting on this suggests that even so, the wrong market conditions could slow ethanol growth enough that the industry would use maybe 300 million fewer bushels in calendar 2011 than projected by USDA if the tax credit disappears. The USDA's most recent forecast was for 4.8 billion bushels of corn to go into ethanol. As we all know, a 300-million bushel hit  to corn demand can have a big effect on futures prices. Of course, shaving 9 cents off the tax credit would seem to have a much smaller impact. What do you think.



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