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S. HRG. 112–277 

FUNDAMENTALS AND FARMING: 

EVALUATING HIGH GAS PRICES 

AND HOW NEW RULES AND 

INNOVATIVE FARMING CAN HELP 

HEARING 

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 30, 2011 

Printed for the use of the 

Committee on Agriculture, Nutrition and Forestry 

( 

Available via the World Wide Web: http://www.fdsys.gov/ 

COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY 

DEBBIE STABENOW, Michigan, Chairwoman 

PATRICK J. LEAHY, Vermont 

TOM HARKIN, Iowa 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

E. BENJAMIN NELSON, Nebraska 

SHERROD BROWN, Ohio 

ROBERT CASEY, Jr., Pennsylvania 

AMY KLOBUCHAR, Minnesota 

MICHAEL BENNET, Colorado 

KIRSTEN GILLIBRAND, New York 

PAT ROBERTS, Kansas 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

SAXBY CHAMBLISS, Georgia 

MIKE JOHANNS, Nebraska 

JOHN BOOZMAN, Arkansas 

CHARLES GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

JOHN HOEVEN, North Dakota 

CHRISTOPHER J. ADAMO, Majority Staff Director 

JONATHAN W. COPPESS, Majority Chief Counsel 

JESSICA L. WILLIAMS, Chief Clerk 

MICHAEL J. SEYFERT, Minority Staff Director 

ANNE C. HAZLETT, Minority Chief Counsel 

(II) 

(III) 

C O N T E N T S 

Page 

HEARING(S): 

Fundamentals and Farming: Evaluating High Gas Prices and How New Rules 

and Innovative Farming Can Help ..................................................................... 1 

Wednesday, March 30, 2011 

STATEMENTS PRESENTED BY SENATORS 

Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan, Chairwoman, Committee on Agriculture, Nutrition and Forestry ............................ 1 

Roberts, Hon. Pat, U.S. Senator from the State of Kansas .................................. 2 

Panel I 

Berkovitz, Dan M., General Counsel, Commodity Futures Trading Commission, Washington, DC .......................................................................................... 7 

Broin, Jeff, CEO of POET, LLC, Co-Chairman of Growth Energy, Souix 

Falls, SD ............................................................................................................... 11 

Dale, Bruce E., Professor of Chemical Engineering, Department of Chemical 

Engineering and Materials Science, Michigan State University, Lansing, 

MI .......................................................................................................................... 13

Newell, Richard G., Ph.D, Administrator, Energy Information Administration, 

U.S. Department of Energy ................................................................................. 6 

Townsend, Stanley R., on behalf of the Kansas Farm Bureau, Townsend 

Farms, Weskan, Kansas ...................................................................................... 9 

APPENDIX 

PREPARED STATEMENTS: 

Berkovitz, Dan M. ............................................................................................ 34 

Broin, Jeff .......................................................................................................... 43 

Dale, Bruce E. ................................................................................................... 50 

Newell, Richard G. ........................................................................................... 54 

Townsend, Stanley R. ....................................................................................... 68 

QUESTION AND ANSWER: 

Stabenow, Hon. Debbie: 

Written questions to Dan M. Berkovitz .......................................................... 74 

Nelson, Hon. E. Benjamin: 

Written questions to Richard G. Newell ......................................................... 91 

Thune, Hon. John: 

Written questions to Dan M. Berkovitz .......................................................... 75 

Written questions to Jeff Broin ....................................................................... 77 

Written questions to Bruce E. Dale ................................................................ 80 

Written questions to Rihard G. Newell .......................................................... 82 

Berkovitz, Dan M.: 

Written response to questions from Hon. Debbie Stabenow ......................... 74 

Written response to questions from Hon. John Thune .................................. 75 

Broin, Jeff: 

Written response to questions from Hon. John Thune .................................. 77 

Dale, Bruce E.: 

Written response to questions from Hon. John Thune .................................. 80 

Page

IV 

Newell, Richard G.: 

Written response to questions from Hon. John Thune .................................. 82 

Written response to questions from Hon. E. Benjamin Nelson .................... 91 

(1) 

FUNDAMENTALS AND FARMING: 

EVALUATING HIGH GAS PRICES 

AND HOW NEW RULES AND 

INNOVATIVE FARMING CAN HELP 

Wednesday, March 30, 2011 

UNITED STATES SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY, 

Washington, DC 

The Committee met, pursuant to notice, at 10:30 a.m., Room SR– 

328A, Russell Senate Office Building, Hon. Debbie Stabenow, 

Chairman of the Committee, presiding. 

Present or submitting a statement: Senators Stabenow, Klobuchar, Bennet, Roberts, Johanns, Grassley, and Thune. 

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR 

FROM THE STATE OF MICHIGAN, CHAIRWOMAN, COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY 

Chairwoman STABENOW. Well, good morning and welcome to the 

Senate Agriculture, Nutrition and Forestry Committee. We are 

going to get started. We know we have other colleagues that are 

going to be joining us but we want to make sure we have as much 

time as possible to hear from witnesses. We thank you all for coming and to have an opportunity to ask questions. 

We are here today to discuss an issue that affects everyone, all 

Americans, especially farmers and middle-class families across 

America. The high, volatile price of gasoline and diesel fuel and the 

role that new rules and American farmers are playing to address 

this problem. 

We have seen reports that as many as 600,000 jobs could be at 

risk because of these recent spikes in gas prices. Certainly in 

Michigan as well as across the country, high prices are squeezing 

farmers. They are squeezing our middle class families, who live on 

tight budgets. When they pay more for gas at the pump, it is only 

logical that it means less cash in their pockets and less ability to 

purchase things that their families need. 

When businesses pay more for fuel, they are unable to hire and 

retain employees which is a dangerous place to be in a very fragile 

economic national economy. A number of questions remain about 

what is causing these spikes. And that is why we are here today. 

Certainly, supply and demand play a significant role, but we also 

know it is not quite as straightforward as that, which is why I have 

asked the Energy Information Administration to appear before us 

today to focus on what is happening. 

2 

We also know that what goes on in the markets plays a role, and 

we need to discuss the significance of that role, which is why we 

put in place tough new rules to stop abuses and manipulation; and 

I want to make sure that the CFTC has the tools and resources it 

needs to protect American consumers from oil prices that are out 

of line with market fundamentals. 

But despite all the questions and the complexity surrounding the 

price of oil, the one certainty that there is in the marketplace is 

that oil prices are volatile which poses a real danger, again as I 

said, to our economy which is what we are extremely concerned 

about. 

That is why we will hear about how America’s farmers can help 

reduce our dependence on foreign oil. We need a real American energy policy, and agriculture has a very important leadership role 

to play and what more they may be able to do in the future to help 

us create that American energy policy. 

Biofuels are the pioneers as we work toward a future where we 

have real alternatives to foreign oil, but there is much work ahead 

of us and a strong need for more innovation to diversify biofuel 

supply. 

Our country cannot afford to lose another 600,000 jobs because 

of spiking fuel prices. This Committee stands ready to continue to 

do what we can to support American agriculture, our farmers, as 

we create alternatives to foreign oil and we will continue to work 

on real solutions. The oversight that is needed using the tools that 

the CFTC has been provided to bring relief to farmers and families. 

So again, welcome to all of you and I turn now to my good friend 

from Kansas, our ranking member, Senator Roberts. 

STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE 

STATE OF KANSAS 

Senator ROBERTS. Madam Chairwoman, thank you very much. 

With apologies to my colleagues and all present, I am not as sick 

as I sound but I do have a cold. 

I want to thank you for holding today’s hearing and to our witnesses for taking time out of their valuable schedule for appearing 

before our Committee to help us provide insight on this important 

issue that you have so aptly described. 

In particular, I want to thank Stan Townsend, who is from 

Weskan, Kansas, for traveling all this way, and I emphasize all 

this way, to give us a producer’s perspective as of this morning 

which I think will be very helpful. 

Stan and his family operate farm ground that has been in their 

family since 1875. He will tell you more about their experiences 

later, but I think it is important for this Committee to hear what 

he has to say. 

Madam Chairwoman, whether it is powering our homes or fueling farm equipment or filling up our cars at the pump, the price 

of energy, as everybody knows, directly impacts the cost of goods 

and operating expenses for American producers. 

While this hearing will examine energy costs under the purview 

of our jurisdiction, it is important we do not overlook the main factor of impacting gas prices, and that is the factor of global supply 

and demand. 

3 

With roughly 70 percent of the price of gasoline and diesel contingent on the price of crude, it is easy to understand that any fluctuations in global supply and demand of crude is the most important factor determining what consumers pay at the pump. 

We can recall from 2008 and 2009, just a few short years ago, 

a weakened global economy drove down the demand of crude by almost 2 million barrels of oil per day, and the prices bottomed out 

at roughly $30 per barrel, and about a buck fifty at the pump. Increased demand and recent instability in the Middle East has 

again placed uncertainty on that global supply of crude. 

For too long, our country has been overly reliant on foreign supplies of petroleum. That is probably the understatement of my 

statement. In my state, the oil and gas industry supports over 

119,000 jobs and contributes $14 billion annually to the Kansas 

Gross State Product. 

We must be careful not to pursue policies counter to this type of 

job creation. I realize we have job to do but let us not do anything 

that would run counter to this kind of contribution, not only in 

Kansas but in every oil and gas state. 

I understand the President will be offering some remarks this 

morning on energy as well, and I know that he will probably follow 

up on what he said earlier this month while speaking in Brazil at 

a business summit where he explained how the U.S. is eager to 

help expand the Brazilian offshore oil development. 

I think it is rather a paradox of enormous irony that with an estimated 86 billion barrels of oil reserves within the U.S., the outer 

continental shelf, that the President would be offering up technology and support for competitors abroad while all the while we 

here have real problems with production here at home. 

I do not offer that in a pejorative way or a partisan way. I think 

it is just a fact. 

This Committee does not have jurisdiction over the federal policies that play the largest role in the energy prices but we sure can 

have a positive impact in three key areas already gone over by the 

Chairwoman. 

First, this Committee oversees the CFTC, the ‘‘cop on the beat’’ 

in the futures market. And Mr. Berkovitz is here today to tell us 

how they monitor the markets while allowing liquidity to flow. 

Second, as Mr. Broin and Mr. Dale will tell us, agriculture is 

leading the way in the domestic production of alternative energy. 

And finally, and more fundamentally, U.S. producers like Mr. 

Townsend and his family continue to contribute to global stability 

by supplying our Nation and a troubled and hungry world with low 

cost, high quality food and fiber necessary to survive. 

As the Agriculture Committee, we must not only understand this 

point but advocate on its behalf. Global hunger leads to instability 

in regards to any political situation all around the world. 

Many times that instability occurs in areas of the world from 

which we rely on for the oil production. The more the U.S. farmer 

and rancher can do to reduce global hunger, the less pain at the 

pump we will all feel. There is a connection. 

Madam Chairwoman, it is my hope that we all learn from these 

witnesses and begin moving away from the rhetoric and toward 

4 

comprehensive agriculture and energy policies that help stabilize 

rising fuel prices. 

Chairwoman STABENOW. Thank you very much, Senator Roberts. 

I want to just in welcoming all of you and I will introduce all of 

you and ask members to include opening statements in the record 

in the interest of time but I do want to indicate as, Mr. Townsend, 

I am getting a little feel for what it takes to get here from Kansas 

as Senator Roberts and I are setting up our first field hearings and 

we are trying to figure out, there are no direct flights to Wichita 

I just have found out. We need to work on that, Senator Roberts. 

We need to figure that one out. 

Senator ROBERTS. Madam Chairwoman, I am not too sure there 

are any direct flights from Weskan to anywhere. 

Chairwoman STABENOW. We need to work on that, too. 

First, let me introduce all of our panelists. Dr. Richard Newell, 

we thank you for coming. Dr. Newell is the Administrator of the 

Energy Information Administration. Dr. Newell is responsible for 

collecting, analyzing, and disseminating independent and impartial 

energy information to help us make sound policy decisions. We welcome you. 

Dr. Newell is currently on leave from his position with the 

Gendell Associate Professor Energy and Environmental Economics 

at Duke University’s Nicholas School of the Environment. So we 

welcome you. 

Dr. Dan Berkovitz is general counsel at the Commodity Futures 

Trading Commission. Previously, he served as counsel to the Senate Permanent Subcommittee on Investigations, chaired by my 

good friend, Senator Carl Levin. 

In his capacity, Mr. Berkovitz led several major investigations 

into energy markets including the role of speculation and the trading of natural gas and crude oil contracts. And so we welcome you. 

Senator Roberts, I do not know if you had anything more. I know 

you have introduced Mr. Townsend but I do not know if there is 

anything more you would like to say. 

Senator ROBERTS. Just a few comments, Madam Chairwoman. 

Chairwoman STABENOW. Yes please. 

Senator ROBERTS. We are extremely fortunate to have on today’s 

panel Stan Townsend, who is a producer from Weskan, Kansas. 

Weskan is about five miles from Colorado. I will tell my colleague. 

Chairwoman STABENOW. All right. 

Senator ROBERTS. And five miles away from being represented by 

you, sir. But in any rate about 15 miles away from the—— 

Senator BENNET. That is unfortunate. 

Senator ROBERTS. Right. 

[Laughter.] 

Senator ROBERTS. Weskan is about 15 miles away from Mount 

Sunflower, which is our State’s highest point of elevation. I am 

sure all of you are aware of Mount Sunflower and the wonderful 

skiing that we have there. 

The trick is not to climb Mount Sunflower. The trick is to find 

it. I did that on the second time around to show my staff Mount 

Sunflower, and I think Stan would get a kick out of this. 

We went too far. I did not think we did but we did. Then we saw 

a farmer in a truck coming down a gravel road the other way. We 

5 

stopped. My driver said how would you like to meet Senator Pat 

Roberts. He is your Senator. 

And he said, ‘‘Well, I know you, Pat, but you are not my Senator. 

You are on Colorado.’’ 

[Laughter.] 

Senator ROBERTS. So I appreciate Stan for coming all this way 

and taking time away from his operation because he is very busy, 

and his family, to provide us with an in-the- field account of the 

effects of high energy cost on our producers. He is a sixth generation farmer with corn, wheat, livestock, and fennel beans in their 

operation. To diversify their production, they also package and 

market their beans. 

Townsend farms is unique in that some of their farm land has 

never been farmed by anyone other than a Townsend, dating clear 

back to 1875, and it takes a lot of work to keep any amount of land 

in one family for that long. 

As he told me yesterday, you have to manage risk. You have to 

adapt to changing market conditions, and perhaps importantly, lay 

a proper foundation so that those who follow you can be successful. 

I know, Stan that we can learn a lot from that message, and I 

thank you for being with us today. 

Thank you, Madam Chairwoman. 

Chairwoman STABENOW. Thank you very much. 

And now we have Jeff Broin with us. I believe Senator Thune 

would like to make the introduction. 

Senator THUNE. Thank you, Madam Chairwoman and Senator 

Roberts. I want to thank you for holding today’s hearing on how 

increasing energy prices are impacting farm and ranch families 

across this country. 

And I want to welcome Jeff Broin, who is the CEO and president 

of POET, which is based in Sioux Falls, South Dakota. Jeff and his 

family have been pioneers in the energy industry since 1987. 

Jeff turned a small ethanol production facility in Scotland, South 

Dakota, which I think may be even small than Weskan, Kansas, 

he has turned that into the world’s largest producer of renewable 

fuels. With 1.7 billions gallons of production capacity, Jeff and his 

team at POET continue to move the biofuels industry forward toward more efficient corn ethanol production and next generation 

cellulosic ethanol product. 

I can attest to my colleagues on the Committee that POET is 

looking well beyond the corn belt, sees the potential for cellulosic 

ethanol production in every state, and I am very pleased that Jeff 

was able to join the rest of our witnesses this morning in discussing how we can lower energy costs for all of our agricultural 

producers. 

Thank you, Madam Chairwoman, and Jeff welcome. 

Chairwoman STABENOW. Thank you and welcome. 

And last, certainly not least, Professor Bruce Dale. We were talking just before the meeting. This is your third time before the Committee testifying, and so welcome back. 

Bruce Dale is professor of chemical engineering at Michigan 

State University, my alma mater. So I am very proud of you and 

your work and, of course, what is being done at Michigan State. 

6 

He is also the Associate Director for the Office of Bio-Based Technologies. Professor Dale’s research and professional interests lie at 

the intersection of chemical engineering and the life sciences. 

I want to thank you for really being a pioneer as we focus on cellulosic ethanol and other important areas. Specifically, I know you 

are interested in the environmentally sustainable conversion of 

plant matter to industrial products, fuels, chemicals, materials 

while meeting human and animal needs for food and feed. 

So we welcome you. We welcome all of you and thank you for 

being here. 

Dr. Newell, we will start with you. 

STATEMENT OF RICHARD G. NEWELL, PH.D. ADMINISTRATOR, 

ENERGY INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY, WASHINGTON, DC 

Mr. NEWELL. Madam Chairwoman, I appreciate the opportunity 

to appear before you today. The Energy Information Administration is the statistical and analytical agency within the U.S. Department of Energy. EIA does not promote or take positions on policy 

issues and has independence with respect to the information and 

analysis we provide. Therefore, our views should not be construed 

as representing those of the Department of Energy or other federal 

agencies. 

Starting with a high overview of the linkages between agriculture and energy, EIA estimates that energy use on farms accounts for about 1 percent of total U.S. energy consumption. In addition to direct farm use of energy, agriculture is indirectly affected 

by energy requirements in the fertilizer industry. 

Agriculture also has an important current and potential future 

role as an energy supplier. Ethanol use in motor fuels has grown 

from 1.7 billion gallons per year in 2001 to an estimated 13.2 billion gallons per year in 2010. Other important energy supply opportunities for agriculture include biodiesel, energy sourced from 

farm wastes and the siting of wind turbines on farms in areas with 

attractive wind resources. 

Turning to the near-term outlook for oil, gasoline, diesel and ethanol markets, EIA expects continued tightening of world oil markets over the next two years, particularly in light of recent events 

in North Africa and the Middle East, the world’s largest oil-producing region. 

Our latest forecast issued earlier this month projects that regular 

gasoline at the retail pump will average $3.70 per gallon this summer and $3.56 per gallon for the entire year, which is about $0.77 

per gallon higher than last year’s level. On-highway diesel fuel retail prices which averaged $2.99 per gallon in 2010, are expected 

to average $3.81 per gallon in 2011. There is significant regional 

variation in gasoline prices and also significant uncertainties surrounding these forecasts as discussed in my written testimony. 

While ethanol production has increased nearly eight-fold since 

2001, EIA expects slow growth in ethanol production over the next 

two years, with forecast production of 13.8 billion gallons in 2011 

and 14 billion gallons in 2012, about 9.9 percent of the forecast volume of gasoline sales in those years. Until recently, federal regulaVerDate Nov 24 2008 00:20 Mar 27, 2012 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\71626.TXT MICHA
7 

tions limited the percentage of ethanol that could be blended for 

use on all gasoline powered vehicles to a maximum of 10 percent. 

EPA, the Environmental Protection Agency, recently granted 

waivers for fuels containing up to 15 percent ethanol for use in 

model year 2001 and newer vehicles and there has been long-standing approval for the use or E85 gasoline blended with 85 percent 

ethanol in vehicles specially designed to accommodate that fuel. 

However, EIA expects slow market growth for E15 and E85 over 

the next two years for reasons again discussed in detail at my written testimony. 

Turning to a longer-run prospective, EIA projects that biofuels 

use will continue to grow to 24 billion ethanol-equivalent gallons in 

2022 and 39 billion gallons in 2035, contributing to an expected reduction in the role played by imported oil in meeting U.S. energy 

needs. Assuming no changes in existing laws and regulations, the 

net import share of the U.S. liquid fuels supply, which was 60 percent in 2006 and 49 percent in 2010, falls to 43 percent by 2035. 

As discussed in my written testimony, future policy changes, notably those involving fuel economy standards for cars and light 

trucks beyond the 2016 model year, could significantly alter this 

projection as could other factors. 

The final topic in my testimony is the interaction between physical and financial markets for energy. EIA’s traditional coverage of 

physical fundamentals such as energy consumption, production, inventories, and spare production capacity continues to be essential. 

But under our energy and financial markets initiative, EIA is also 

assessing other influences, including linkages between energy spot 

prices, energy derivative markets, other commodity markets, broader asset markets, and exchange rates as we seek to fully understand energy price movements. 

My written testimony discusses the correlations we have observed over the past few months and how they can be interpreted 

and contrasted to those during recent past periods of rising oil 

prices. 

Madam Chairwoman, members of the Committee, this concludes 

my testimony and I would be happy to answer any questions. 

[The prepared statement of Mr. Newell can be found on page 54 

in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Mr. Berkovitz, welcome. 

STATEMENT OF DAN M. BERKOVITZ, GENERAL COUNSEL, 

COMMODITY FUTURES TRADING COMMISSION 

Mr. BERKOVITZ. Good morning, Chairman Stabenow, Ranking 

Member Roberts and members of the Committee. I appreciate the 

opportunity to testify today regarding the Commodity Futures 

Trading Commission’s regulation of derivatives markets. The mission of the CFTC is to ensure the integrity and transparency of derivatives markets. 

With the passage of the Dodd-Frank Act, the CFTC’s mission 

now includes the regulation of the swaps market in addition to the 

futures market. Like futures, swaps can include physical commodities such as wheat, corn, oil, and gasoline as well as financial commodities. 

8 

The CFTC strives to ensure that the markets within this jurisdiction are transparent and free from fraud, manipulation, and 

abusive trading practices. 

The CFTC also seeks to ensure that the transactions within its 

jurisdiction do not pose systemic risks. The CFTC fulfills its statutory mandate through market surveillance, industry oversight, and 

enforcement. 

In carrying out its responsibilities, the commission relies, in part, 

upon industry self-regulatory organizations such as the futures exchanges themselves to monitor trading and enforce compliance 

with trading rules and position limits. Ultimately, however, it is 

the commission that is responsible for the enforcement of the statute and its regulation. 

As part of its surveillance function, the commission routinely collects and analyzes position reports that are required of large traders in the futures markets. These reports and other surveillance 

data allow the commission staff to see accumulating positions that 

may be disruptive of fair and orderly trading, to act to prevent 

such disruptions and, where appropriate, enforcement action. 

Since fiscal year 2008, the commission has collected just over $236 million in civil penalties imposed in enforcement actions. Recently, the commission has seen an increase in the number of fraud 

cases, including Ponzi schemes. Since October of 2008, the commission has filed a hundred enforcement cases for fraud. 

The Dodd-Frank Act repealed provisions of the law that prior to 

Dodd-Frank restricted the commission’s authority to regulate the 

swaps market, including provisions which specifically related to the 

energy markets. 

Under Dodd-Frank swaps dealers and major swap participants 

are required to register and are subject to capital and margin requirements, record keeping and reporting requirements, and business conduct standards. 

The CFTC is directed to determine which swaps should be required to be cleared and swaps that are required to be cleared also 

must be traded transparently on swap execution facilities or designated contract markets. Non-financial end users hedging or mitigating commercial risk are exempt from the clearing and trading 

requirements. 

The Dodd-Frank Act expands the CFTC’s surveillance capabilities by requiring the reporting of basic data about each swap transaction to either the CFTC or a swap data repository. 

The Act also provides the public with increased transparency in 

the swaps market. The Act directs the commission to establish 

speculative position limits as appropriate for futures contracts and 

economically equivalent swaps for agricultural and energy commodities. It also requires aggregate limits for these commodities. 

This January the commission proposed a rule to implement these 

provisions. The comment period closed this Monday, March 28. 

Dodd-Frank extended the commission’s anti-manipulation authority to cover swaps. The Act further provides the commission 

with new anti-fraud authority as well as new anti-manipulation 

authority. 

The Act also includes new prohibitions on disruptive trading 

practices, new protections and potential monetary recovery for 

9 

whistle blowers, a prohibition of the trading on the basis of nonpublic information obtained from the federal government, and authority to prevent evasions of the Act’s provisions. 

The Act also provides the CFTC with new authority to register 

foreign boards of trade that provide direct access to traders in the 

United States. 

The CFTC is in the midst of the rule-making process with respect to many of these authorities. The CFTC has encouraged public comment on all of its rule-makings and is evaluating the comments it has received so far. 

With respect to the CFTC’s budget, the President’s budget pro- poses that $308 million be appropriated for the CFTC for fiscal 

year 2012. This funding level is the estimated amount the agency 

needs to perform its responsibilities for its continuing oversight of 

the futures and options markets and in beginning to oversee the 

swaps market. 

The CFTC’s resources are primarily for staff and technology. The budget for 2012, the request is for $666 million for technology. This 

level of funding is necessary for the CFTC to be able to upgrade 

and expand its technology capabilities, to handles its new data and 

responsibilities under Dodd-Frank. 

Thank you for this opportunity to address the Committee. I 

would be happy to answer any questions. 

[The prepared statement of Mr. Berkovitz can be found on page 

34 in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Mr. Townsend, welcome. 

STATEMENT OF STANLEY R. TOWNSEND, ON BEHALF OF THE 

KANSAS FARM BUREAU, TOWNSEND FARMS, WESKAN, KANSAS 

Mr. TOWNSEND. Good morning, Chairman Stabenow, Ranking 

Member Roberts and members of the Senate Agriculture Committee. I appreciate this opportunity to testify this morning about 

the role of energy prices and production on my operation. My fellow 

panelists have a broad range of experience in the development and 

regulation of energy. 

I am here today as a member of the Kansas Farm Bureau to give 

the Committee my perspective on the impacts of energy prices in 

the field and the management practices my family employs to mitigate costs and manage risk. 

Kansas Farm Bureau represents nearly 40,000 farm and ranch 

families across our diverse state who live, raise their families, and 

earn a living in these challenging economic times. 

My name is Stan Townsend. I have the privilege to have married 

my sweetheart of 31 years and have two grown and married daughters and four grandsons from 4 to 11 months. We are a sixth generation farm. 

Some of our operation consists of ground that has never operated 

by anyone other but a Townsend, some dating back to but the patent from the U.S. Government. That was prior to a deed to be 

given. 

Currently the seventh and eighth generations of our family are 

helping on the farm and growing up with it as we raise corn, wheat 

and pinto beans, and we have a small feedlot that consists of 999 

10 

head capacity. It seems that today many businesses face increasing 

margins due in a large part increasing fuel costs and inflation. 

Farming has not been spared this scenario. Investors view land 

as a potential safe haven resulting in land values that have increased 50 percent from just a short time ago. In 1988, maybe not 

a fair year to compare but this is when I started on my own, a new 

tractor was $41,000. That tractor today is $281,000. Chemicals we 

used then were $7 per acre. Today they are $30. NH3 fertilizer 

costs have doubled since prepay in December of 2010 although natural gas prices have not. It is decoupled and it is a concern of the 

inflationary things going on there. 

Inconsistent input costs, even when coupled with high demand 

and high prices for our commodities, require us to strategically 

plan for the future through diversification and solid marketing. 

That strategy is especially true when it comes to petroleum-based 

products. 

Bulk diesel today costs nearly 14 times what it did in 1988. That 

reality has a significant impact on our operation which relies heavily on trucking to transport our product. Those freight costs have 

doubled in the last year specifically related to increasing fuel costs. 

There are segments of our society that seek to disparage the development of the ethanol industry and point to the price of corn as 

a result of development and then as the sole reason for increased 

costs at the grocery store. In reality, as a livestock producer, I understand the impact of the increased corn prices. That is part of the 

reason we produce the corn we do. 

It allows us to feed our stock without entering the market to purchase that feed. Ethanol has also provided the industry with the 

unique opportunity to incorporate the use of high quality DDGs 

into our feed cycle. Using the product is one of the many ways we 

can mitigate our costs and remain profitable. In fact, estimates 

show that up to 60 percent of original corn inputs can be returned 

as DDGs. 

We also frequently fail to realize the benefits of ethanol at the 

gas pump. Without its inclusion in our fuel mix, each of us would 

face gas prices 40 to 60 cents higher at the pump. One of our nontraditional attempts to diversify our operation is packing and marketing our pinto beans. 

This effort provides our operation a direct connection between 

the farm and the grocery store consumer. It also offers a unique 

perspective on the true culprits in the increasing cost on the food 

supply. 

Again, the answer can be found in the input costs of petroleumbased products. Our one pound packages of dryable beans contain 

8 cents in the packaging film, 20 cents in trucking, and 30 cents 

that the farmer splits with the processor. Yet another example of 

the very tight margins across our family operation. 

At this point I would be remiss if I did not mention the litany 

of regulatory costs that directly impact our operation. From environmental regulation to tax paperwork, we spend countless hours 

in compliance with the latest efforts of our government. 

Recently, we have become concerned about the impact on our operation, providing health insurance reform documentation, W–2 reVerDate Nov 24 2008 00:20 Mar 27, 2012 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\71626.TXT MICHA
11 

porting. Anybody that gets a W–2 we are going to have to produce 

insurance for. 

My family has been sustained by this land for six generations or 

130 years. We have endured drought, hail, whatever the debacle of 

that particular generation might have been. 

Beginning in 1873, Townsends left up-state New York and took 

a risk and headed west. On the Welsh side of our family, their 

presence in the Great Plains dates to the Cheyenne Indians of 

which my grandmother was a member. This farm is my home and 

my livelihood. 

I only have to look into my grandsons eyes to be reminded of my 

duty to ensure that my indebtedness or bad decisions does not impact their future on this land. I continue to hope that our generation will learn that lesson and apply that knowledge to our government. The future of the next great generation is at stake. Thank 

you. Any questions. 

[The prepared statement of Mr. Townsend can be found on page 

68 in the appendix.] 

Chairwoman STABENOW. Thank you very much. We appreciate 

that very much. 

Mr. BROIN. Welcome. 

STATEMENT OF JEFF BROIN, CEO of POET, LLC, CO-CHAIRMAN 

OF GROWTH ENERGY 

Mr. BROIN. Chairwoman Stabenow, Ranking Member Roberts, 

and members of the Committee, thank you for the opportunity to 

testify today. My name is Jeff Broin, and I am CEO of POET. 

Our 27 plants are spread across rural communities in seven 

states and produce 1.7 billion gallons of ethanol and about 9 billion 

pounds of animal feed each year. Gas prices are increasing and I 

applaud the Committee for testing this issue. 

A recent summary of several studies concluded that ethanol 

keeps U.S. retail gasoline prices about $0.17 per gallon lower. That 

translates into an annual savings of $100 per driver or $24 billion 

for all U.S. drivers. 

The solution to keep gas prices lower for American motorists is 

to have an alternative to gasoline. That alternative is available 

today in home-grown renewable ethanol. But to realize this opportunity we must reform existing policies, allow competition and see 

beyond RFS, because today an artificial blend wall limits ethanol 

to 10 percent of the fuel supply. 

We are exporting affordable American ethanol while importing 

more expensive foreign oil. There is also more than $1 billion of 

American assets sitting idle, ethanol assets, that could be providing 

American fuel and creating American jobs. Why are gas prices 

high? This is one reason. 

Fortunately, the path for breaking through the blend wall is 

clear and early steps have already been taken. Based on overwhelming scientific data, the EPA approved blends of 15 percent 

ethanol, E15, to use in vehicles to 2001 and newer. 

The certification process must be completed before drivers can 

use this fuel. I hope the Senate will block any attempts to deprive 

consumers the choice of E15. 

12 

The next step is Growth Energy’s fuel freedom plan that will 

gradually scale back the ethanol tax credit and for a limited time 

redirect those funds toward blender pump installation. Add to that 

a low-cost flex vehicle requirement and allow ethanol pipelines access to loan guarantees. 

With those elements in place, the oil would no longer enjoy exclusive access to 90 percent of the fuel supply. The best way to lower 

prices for consumers is to allow ethanol to compete with oil in the 

marketplace. 

Beyond that, what all the industry will need is simple stability. 

With your support, the ethanol industry can help make oil price 

spikes a concern of the past. 

Let me tell you about what POET is doing in another exciting 

area. Cellulose or more challengingly corn to convert into ethanol 

represents even a larger opportunity because it is the most common organic compound on earth. 

Today, after more than a decade of steady process, POET has an 

operating pilot facility producing cellulosic ethanol from corn cobs 

and light stover. 

Our first commercial project, Project Liberty, which is scheduled 

to start production late next year, will create 300 jobs and launch 

an industry that will create almost 90,000 direct jobs by meeting 

minimum targets in the RFS. 

In the future, we plan to produce cellulosic ethanol from things 

like Georgian wood chips, Arkansas rice hulls and other sources of 

biomass that exist in all 50 states. But we cannot get there without 

stable government policy. 

For example, to develop a biomass supply for cellulosic ethanol 

producers, Congress established Biomass Crop Assistance Program 

or BCAP to match bio-refinery payments to farmers up to $45 per 

ton in the first two years of production. 

To the 85 farmers we contracted with for last fall’s harvest, it 

was a sign of the country’s commitment to cellulosic ethanol. 

Earlier this year, legislation was introduced to eliminate BCAP 

just as the first payments were being made, casting doubt in the 

minds of many of those farmers. This uncertainty will make it 

more difficult to sign up the additional 200 to 300 farmers we need 

to produce commercial quantities of cellulosic ethanol. 

Similar situations have had an impact on investors. Today, it is 

impossible to get financing for a cellulosic ethanol plant without a 

federal loan guarantee. I urge the Senate to continue funding for 

DOE’s renewable energy loan guarantee programs. 

POET has invested millions in developing our cellulosic technology, and construction of the facility is dependent on our pending 

DOE loan guarantee application. 

Cellulosic ethanol can build on the accomplishments of grain ethanol, hold gas prices down, and make us less dependent on foreign 

energy. All we need is stable government policy. 

Sustainable grain prices created by ethanol production helped 

U.S. farm income rise by 31 percent last year. That will be mirrored worldwide as farmers bring previously farmed land back into 

production because it is profitable for the first time in 50 years. 

Stanford research shows one billion acres of vital crop land available for production, enough to feed and fuel the world. 

13 

In closing, I would like to emphasize that to keep gas prices 

lower we must create public policy stability and give ethanol the 

opportunity to compete with oil in the marketplace. 

If we can accomplish this use for now, we will see that the emergence of the ethanol industry was an important turning point in 

our Nation and our world’s history. 

Thank you, and I would be happy to answer questions. 

[The prepared statement of Mr. Broin can be found on page 43 

in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Dr. Dale, welcome. 

STATEMENT OF BRUCE E. DALE, PH.D., PROFESSOR OF CHEMICAL ENGINEERING, DEPARTMENT OF CHEMICAL ENGINEERING AND MATERIALS SCIENCE, MICHIGAN STATE UNIVERSITY 

Mr. DALE. Thank you very much. I appreciate the invitation to 

be here today. As Senator Stabenow noted, this is my third experience testifying before this particular Committee. I first testified on 

biofuels when Senator Lugar chaired the Committee many years 

ago. 

Between then and now we have made significant progress. We 

still have a long, long way to go. So I will be very frank and as 

honest as I know how to be. Unless we clearly understand our situation, we will not be able to solve the serious problems we face. I 

am going to start out by being quite sober but hopefully end on a 

more cheerful note. 

So our economy depends very strongly on liquid transportation 

fuels, and that market is dependent almost completely in petroleum. The days of cheap, domestic oil are gone. No one should mistake this. Those days are gone, and they will not return. We 

burned up the cheap oil long time ago. 

Likewise, the days of cheap foreign oil are rapidly ending. We are 

increasingly at the mercy of much more expensive oil, much more 

environmentally damaging oil, and much more insecure oil supplies. Not a pretty picture. 

Three years ago, oil prices peaked at about $145 per barrel. 

Shortly thereafter, the stock market tanked, and we entered a severe recession. We ought to get the message. Every recession since 

the end of World War II has been preceded by increased oil prices. 

Oil prices are rising again and threatening to kill this fragile recovery. 

So a very sobering scenario arises: high and volatile oil prices kill 

economic growth, sending us into recession which decreases oil 

prices somewhat, leading to a recovery in which demand for oil 

rises again, which recovery is killed again by rising oil prices. And 

with every such cycle, more and more of our national wealth disappears, making us less and less able to emerge from this vicious 

circle and achieve a more sustainable future. Again, not a pretty 

picture. 

So what can we do to reduce our vulnerability to high oil prices 

and oil price volatility? We can and should decrease demand for oil 

by increasing fuel efficiency standards over time. We can and 

should increase domestic production of oil. 

14 

One way to do that is to combine carbon dioxide sequestration 

with enhanced oil recovery. But increased domestic oil supply is 

only a transition to get us to more sustainable, long term solutions. 

Increased oil supply cannot and must not be an end in itself because one day very soon that oil will also be gone, burned up again. 

No one should mistake this fact. And more fuel efficient vehicles 

will help, but they are also not enough. We require lots of sustainable liquid fuel if we are to continue our way of life. 

Thus we need to increase production of oil alternatives, including 

biofuels. There simply is no way to a sustainable transportation 

sector without sustainable biofuels. I have worked for 35 years to 

help develop cellulosic ethanol, called second generation ethanol. 

Mr. Broin has discussed the corn ethanol industry, so called first 

generation ethanol. 

That industry has received a lot of criticism, almost all of it unfounded. Corn ethanol is a much better product and much better 

for our economy and environment than most people realize. But my 

point is that a viable cellulosic ethanol industry will depend very 

strongly on a healthy, strong corn ethanol industry. 

However, cellulosic ethanol has been essentially stalled, the commercialization essentially stalled for the past couple of years because of the blend wall that Mr. Broin has mentioned. 

No one was able to move forward with cellulosic ethanol because 

there was no market for the additional ethanol, not because the 

ethanol is a poor fuel. It is an excellent fuel. But simply because 

we do not have the right vehicles and the right infrastructure to 

use all the ethanol we can produce. 

So we should require that all new vehicles sold in the United 

States be flex fuel, and thereby give the consumers the real choice 

in the fuels they use. I encourage every Senator on this Committee 

to cosponsor The Open Fuel Standard Act in the 112th Congress. 

And we need a lot more blender pumps so that infrastructure 

limitations are reduced. Since gas stations replace their pumps 

every ten years anyway, we should require that all newly installed 

pumps be blender pumps. 

Ethanol and other renewable fuels have been criticized as mandates and contrary to free market principles. The folks who make 

these claims ought to know better. We already have a fuel mandate, and it is gasoline. 

Worse than that, since we import 60 percent of our oil, the current mandate is effectively we fill up our cars with foreign gasoline. 

That is the mandate we have. Except for ethanol, we do not have 

fuel choice. And as for an open market, that is frankly ridiculous. 

The current fuel system is a closed market in which only oil, 

mostly foreign oil, is allowed to compete. So some of the folks again 

who criticize the ethanol mandate, as they call them, also call for 

us to Buy American. I agree with them. We should open our fuel 

markets. 

If we do not open our fuel markets, I believe we are doomed to 

have high priced fuels and very volatile fuel prices probably provoking one recession after another after another. 

Now the cheerful note that I promised. Okay. The Department 

of Energy and the Department of Agriculture are advancing cellulosic biofuels. I would like to mention in particular the Bioenergy 

15 

Research Centers funded by the Office of Biological and Environmental Research in the Department of Energy. 

These Centers bring together a large cross section of expertise to 

help provide how the integrated, fundamental understanding, a 

Manhattan Project, if you will, is critical large scale cellulosic 

biofuels. Without such a large, integrated effort, Manhattan Project 

progress is much slower or may not happen at all. So even in a 

time of tight budgets, we must press forward with research and development on cellulosic biofuels. 

I am going to tell you one story and then I am done. I am fortunate to be able to participate actively in one of these Centers, specifically the Great Lakes Bioenergy Research Center, called the 

GLBRC. 

In just a few years in the GLBRC, we have greatly improved our 

understanding of how to develop sustainable, large-scale cellulosic 

biofuels. 

For example, many people question whether we can actually 

have a large-scale biofuels industry without causing food shortages 

or environmental devastation. 

With GLBRC, my research group looked at how we could innovate in agriculture to provide large-scale cellulosic biofuels, ample 

food, and big environmental improvements. 

The answer turns out or an answer at least turns out to be quite 

simple, grow a lot of double crops. Using about 300 million acres 

of crop land which is 70 percent roughly of our crop land, we analyzed what would happen if we planted double crops on about one 

third of our corn and soy land. 

We found that by doing this one simple thing we could produce 

about 100 billion gallons of ethanol, roughly the amount of gasoline 

we import, provide all the food and animal feed the land currently 

produces, improve soil quality and biodiversity and reduce total 

U.S. greenhouse gas emissions by 10 percent, a very pretty picture, 

at last a win-win-win for national security, economic security, and 

climate security. 

So I am confident that if we open our fuel markets to real competition, end the current mandate for foreign gasoline, and promote 

agricultural innovation, we can exchange our current precarious 

and expensive fuel situation for one that is both economically and 

environmentally attractive. 

Thank you. 

[The prepared statement of Mr. Dale can be found on page 50 in 

the appendix.] 

Chairwoman STABENOW. Thank you very much and thank you to 

all of you for your testimony. 

As we all know, the Committee’s purview is very broad both in 

terms of advocating and supporting American agriculture, including our energy policy on biofuels, et cetera, and also overseeing the 

markets, and certainly under Dodd-Frank and the new efforts, new 

requirements under CFTC focusing on the swaps markets. 

The reason for bringing all of you together today is that it really 

does fit when we are thinking about oversight in terms of what we 

need to be doing to make sure that there is not excessive speculation and manipulation in the marketplace but at the same time 

16 

what can we do to get off of foreign oil and be able to create real 

alternatives both to bring down costs as well as create jobs. 

But let me start, Mr. Berkovitz, with you from the CFTC stand 

point because one of my real concerns is the fact that in passing 

the new law, the expectation was that it would take extra resources, new resources at least in the short run to be able to implement, to be able to get the rules in place, be able to do the oversight that is necessary. 

And unfortunately we have seen nearly a 60 percent cut from 

what you indicated was in the President’s budget that has come 

from the House of Representatives; and when we look at what that 

would do, I guess that really is my question. 

If we are serious about the policing the markets that impact the 

daily lives of all of us, of farmers, of families, how would these cuts 

impact your enforcement division and the ability to police the markets, and when you layout the tools that are now available to you 

to be able to bring transparency and accountability and oversight? 

I am concerned as to which of the new tools would the CFTC be 

unable to use at the funding levels that we are now seeing discussed and what are the risks to farmers and businesses and consumers if you are not able to use the accountability and oversight 

power that you have been given. 

Mr. BERKOVITZ. Thank you for the question, Madam Chairwoman. 

As I mentioned for fiscal year 2012, the President’s budget request is $308 million. For fiscal year 2011 which we are operating 

in, it was $261 million. Under the continuing resolution, we have 

been operating at the fiscal year 2010 levels, continuing in 2011, 

of $168.8 million. 

Under H.R. 1, which would take us back 2008 levels, the overall 

funding level would be, for the entire fiscal year of 2010, the year 

we are in, about $112 million. To get to that overall funding level, 

the agency has calculated that we are currently staffed at about 

670, 680 employees. Under H.R. 1, we would have to lay off about 

440 of our current employees so that would be 

Chairwoman STABENOW. What does that mean for us that are all 

very concerned about this economy, very concerned what is happening on gas prices, on diesel fuel prices and so on, and what is 

happening in the marketplace and the fact that supply and demand 

cannot account for what is going on here. 

As we have been hearing, that, in fact, usage is going down and 

yet prices are going up. I mean, what does this mean for the average person in terms of what you are able to do through the CFTC 

and what you are not able to do? 

Mr. BERKOVITZ. At that level with that kind of reduction, we 

would not be able to fulfill the mandate that Congress has provided 

to us to effectively oversee the markets as Congress has directed. 

Chairwoman STABENOW. Thank you. 

Let me move to another type of question and ask Dr. Dale and 

Mr. Broin if we have time here to talk about cellulosic biofuel production. And I know, Dr. Dale, you and I have been meeting and 

talking about this for years. 

17 

We, in the last Farm Bill, put in the cellulosic ethanol tax credit 

and have been talking about where we can go on a commercial 

scale for a long time. And I know you have been working on that. 

My question is when will we, do you believe, really be able to see 

large-scale quantities of biofuels in the marketplace coming from a 

wide variety of feed stocks; and then, secondly, under the 2007 

USDA/Department of Energy study, they stated that we have the 

potential to produce 1.3 billion tons of cellulosic biomass per year 

which would displace about 65 percent of our oil consumption. 

So obviously if we can get there and we can get there quickly, 

this would make a big difference. So I am wondering what do we 

need to do at this point? 

Mr. DALE. Thank you. I will try to respond from the back to the 

front. Actually I think the USDA/DOE estimate of 1.3 billion tons 

is probably conservative. I think we probably can have more than 

that. A paper that I had left for you folks will indicate some ways 

to do that, particularly the cover crop approach. 

Secondly, as to when we, and I do not want to dodge the question, but I want to be very frank again, as to when we will do this. 

We will do it when we choose. It is not so much a matter of technology. The technology is coming along as Mr. Broin has pointed 

out. 

We will do this when we choose to open our fuel markets, when 

we provide stable policies that allow alternatives to petroleum to 

go up, and when we continue to support the necessary research and 

development to make this industry happen. It is more a matter of 

what we choose, Senator. I really believe that. It is a matter of our 

policies, our choices as individuals, as a society how fast we get to 

alternatives. 

Chairwoman STABENOW. Thank you. I think in the interest of 

time as chair I want set a good example. My five minutes is up. 

So we will come back with a second round at this point and we can 

continue that discussion. 

Senator Roberts, I will turn it to you. 

Senator ROBERTS. Thank you, Madam Chairwoman. I think basically Mr. Dale said he needs more money. 

Stan, you have highlighted the increased cost you have experienced over the years and most folks have no idea that a tractor can 

cost over $300,000. Yet many believe that the high commodity 

prices will taken up with the rising costs that you mentioned in 

terms of fuel, the input costs, all of that. 

How do you manage these rising costs and keep your balance 

sheet in the black? How are you doing this? 

Mr. TOWNSEND. Well, we have had a lot of practice. We went 

through ten years of drought from 1997 to 2007. My family has 

kept a history of weather. In 2002, we had two inches and seventy 

one hundredth, and that was the driest year in our recorded family 

history by seven inches. 

We are currently having one of the driest springs we have had 

on record at this point in time. So we face tough conditions most 

of the time that kind of makes tough people. 

We forward-contract. We prepaid our fertilizer into the December 

2010, and those prices have doubled. If you could get 10340 today 

it would be $1000, and I do not think you can find it. They have 

18 

withheld the asset off of the market. So they have raised the product price to an astronomical level. 

So it is just sheer practice. You learn it the hard way. 

Senator ROBERTS. You have commented on the impact that energy prices have had on your farm. But you also mentioned that 

word that I have been hearing over and over and over again and 

I think every member of this Committee has, and that is regulations. Could you comment for this Committee how the cost of compliance with all of the government regulations that you face or all 

of the government regulations that you, there are some that you 

probably will face such that you are not aware of yet compared to 

these higher energy costs? 

Mr. TOWNSEND. The thing that, the unfunded mandates, it affects all of us. One of the biggest ones right now is we have 36,000 

gallons of fuel storage. We are having to build facilities. 

There is some disagreement whether we have to have a $10,000 

engineer per site or whether we can do that with a program that 

has been run on the Internet that shows the same thing that he 

would for $10,000. 

The current one, of course, regulation of dust and spray nozzles 

and everything. Stay where your knowledge is at. In our country 

we raise the dust. There is nothing we can do about that. 

We are spraying our crops. We are saving fuel. I have cut the 

hours on my tractors. Normally, prior to strip till and no till farming, we used to produce 1700 gallons of nothing but just waste oil. 

Now we are down to 300 gallons where our tractors run less hours, 

our equipment is bigger and we using more chemicals. 

But we do not need to be regulated out for spray drift. We can 

control spray drift. We know what we are doing because if we drift 

on another farm we have to pay for that. There is a consequence. 

So we try not to do those things. 

Senator ROBERTS. And you also follow the label under FIFRA? 

Mr. TOWNSEND. Yes. 

Senator ROBERTS. All right. I really appreciate that. 

I have about a minute I guess left to go. I am going to yield that 

time or add the time to Senator Johanns and then I have some 

other questions for the other witnesses. 

Chairwoman STABENOW. Thank you very much. 

We will first turn to Senator Bennet, and then I believe Senator 

Thune has left and so Senator Johanns will be next. 

Senator BENNET. Thank you, Madam Chair. I want to thank you 

and the ranking member for assembling an excellent panel. Your 

testimony has been really terrific, and you should know that you 

have exceeded the bar of most of our Committees so thank you for 

doing that. 

I also want to thank you for letting my two little daughters who 

have come today and they have been reasonably well behaved so 

I will thank them as well. 

Mr. Newell, I wanted to start with you because there was, I 

think, in a period of very difficult political conversation over the 

last two years across the country and certainly in the State of Colorado, the one thing that people could rally behind no matter what 

town hall meeting they were in was the idea that we ought to 

19 

break our addiction to foreign oil, especially oil that we imported 

from the Persian Gulf. 

I think, like the ranking member, I believe we need to move beyond rhetoric on this question and start to think about solutions 

to this problem in a way that will not disrupt our domestic economy. 

I believe that rural America, rural Colorado may be the best 

place for the reasons Mr. Townsend stated to look, to gain an understanding of how vulnerable our addiction to oil makes us. 

In rural areas where work can be 50 miles away from home and 

the mechanic 10 miles in the opposite direction, a fluctuation of 

just a few cents, as we have heard, in gas prices quickly can drive 

up the day-to-day cost of living. 

It might mean choosing between driving to work and paying the 

heating bill or for a farmer it may mean running over budget even 

before getting seeds into the ground because the fields must be 

plowed regardless of the cost of fuel. 

So I am glad this panel is here with a diversity of views on this. 

I wanted to ask you, Dr. Newell, because I know you have written 

extensively on energy policy options even before your tenure at 

EIA. 

As you know, the DOE estimates that United States is between 

2 and 3 percent of the world’s oil reserves yet we consume about 

a quarter of the world’s oil. 

Since the price of oil is set on a world market, any new domestic 

development can easily be upset by a reduction of the output from 

OPEC which clearly creates an unsustainable arrangement situation. 

I wonder what recommendations you have for Congress to reduce 

gas prices in the near term and in long term because in the near 

term, we know, and I come from a State with abundant wind, 

abundant sun, abundant natural gas, abundant biofuel production. 

But in 2004, the EIA analysis told us that opening up protected 

areas to new oil drilling might reduce gas prices in America by 

three to four cents, and those savings would not come until 2027. 

So has there been a change in that estimate at all; and if not, 

what are your suggestions for how we do this in the near term? 

Mr. NEWELL. Well, you correctly point out that the oil market is 

a global market. The United States is a significant consumer of oil. 

In terms of production of oil, the United States produces currently 

about 11 percent of the global liquids supply. So in terms of understanding the price impacts of particular actions that could be taken 

either on the demand side or the supply side is really important 

to put that in a global context. 

The typical types of actions that are discussed are usually measured on the order of hundreds of thousands of barrels per day or, 

for major actions, maybe a million barrels per day which is a significant amount of oil for sure, but in the global market, which is 

close to 90 million barrels per day, these volumes tend to be a very 

small fraction and they tend to take place over an extended period 

of time. 

Trying to identify a near-term price impact from actions that are 

a small increment of a global market is quite challenging. We typiVerDate Nov 24 2008 00:20 Mar 27, 2012 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCS\71626.TXT MICHA
20 

cally see oil price fluctuations on a daily basis of 1 to 2 percent. 

Sometimes it is significantly greater than that. 

So trying to separate the signal from the noise of these actions 

is very difficult if one focuses on prices. 

Senator BENNET. What about over the longer-term? 

Mr. NEWELL. Well, over the longer term, either policy actions or 

other market developments that reduce demand or actions that increase supply will both tend to point in the direction of lower 

prices. 

The key question is what is the magnitude of the price change, 

which is going to depend upon the magnitude of the action-again 

put in a global context. 

Any number of actions when added up across many different 

sources of supply or across many different sources of demand reduction will have an influence on market prices over a period of 

time. But again it is not just what occurs in the United States and 

it is not just what occurs from one individual action. It is really the 

aggregation of all these effects that will in the end determine global oil prices. 

Senator BENNET. Thank you, Madam Chair. 

Chairwoman STABENOW. Thank you very much. 

Senator JOHANNS. Senator JOHANNS. Thank you, Madam Chair, and I thank the 

ranking member for that courtesy. I appreciate that. 

Mr. Townsend, loved your testimony. I can think of so many families back home in Nebraska who could talk like you do about just 

the very, very deep roots that they have laid down. 

If your family survived this long, it means you survived the 

tough times of the dust bowl years. Anybody who can survive that 

has tough genetics in the background, in my personal opinion. 

You talked about regulation, and I would like to focus on one aspect that I have been working on actually now for nearly a year 

and that is the 1099 requirement in health care bill. You even 

mentioned that, I think, in your testimony. 

Give us a real life view of how that is going to impact your operation if you have to issue 1099s for all goods and services purchased over $600 during any calendar year. Just walk us through 

the mechanics of what challenges that is going to present to your 

operation. 

Mr. TOWNSEND. I am going to take it to people. Our insurance 

provider in the paperwork we just filled out, one requirement was 

a W–2 or 1099 if we have to insure these part-time people. We 

have taken in several kids, and our goal is to teach them a work 

ethic. 

Momma takes one and I take one. And through that time frame 

we try to teach them how to work, try to teach them management 

skills, teach them how to use the farm ground. There is any number of things. We just try to develop a better person. 

If those kids become, even though they are at home, if we have 

to insure those individuals, that will put that into trouble with us 

because we are doing that for the kids. We are trying to build a 

better generation. 

On the other side of it, we have part-time employees that come 

in. One of them we had to report worked for us for three weeks. 

21 

He had a job. He took his vacation and he helped us harvest. 

Would love to have him back, enjoyed it. But are we going to have 

to insure him as well? 

So those questions I fear. 

Senator JOHANNS. That deals with the actual insuring requirement. The requirement that I was referring to was the requirement 

that every time you make a purchase you would have to do a 1099 

form. You would have to issue it to the IRS and to the vendor that 

you purchased from, and it is every purchase over $600. 

How much paperwork is that going to cause you? 

Mr. TOWNSEND. I probably in any given single day could make 

20 purchases of at least that magnitude in any given day. So that 

would be an astronomical problem for me to keep track of. 

Senator JOHANNS. On your operation, do you irrigate? 

Mr. TOWNSEND. Yes, I do. 

Senator JOHANNS. Center pivot or? 

Mr. TOWNSEND. Yes. 

Senator JOHANNS. What kind of engine? Is it electricity? 

Mr. TOWNSEND. I use electric, natural gas, and diesel. 

Senator JOHANNS. Okay. So you use all three. So in addition to 

the cost of fueling up the tractors, you have this additional cost. 

Mr. TOWNSEND. Yes. 

Senator JOHANNS. Mr. Broin, good to see you again. 

Let me, if I might, ask you a question about ethanol. Been a supporter of ethanol for a long time, as you know. Supported it when 

I was Secretary of Agriculture. I can see the difference it has made 

in my State in Nebraska. It really has transformed the rural economy in many areas. 

But the blenders credit, as you know, every time it comes up for 

renewal it just seems to be getting a tougher battle. You talked 

about, is there a point here where we start phasing that out and 

offering a tax credit or something to put the pumps in? 

The more I have rolled that over in my mind it seems to me to 

be a wise policy to try to build that marketplace instead of relying 

on the credit because one of these times I am worried that we will 

not get that done. 

Talk to me about how you think we could roll that out and how 

that would work. I would like to also just get your sense of how 

the ethanol industry would feel about that approach. 

Mr. BROIN. Well, you probably are aware of the Growth Energy 

fuel and freedom plan. That is something we have been talking 

about where we would take our current incentive and take a portion of that and actually use that to build up the infrastructure, 

use that to build up the blender pumps. 

We believe if we could get about 200,000 blender pumps put in 

this country in a five-year period which we think is attainable with 

those dollars, with some help for the people who have to put that 

in, and couple that with a requirement for flex-fuel vehicles, in addition to some government loan guarantees for pipelines because 

we need some pipeline infrastructure eventually here as well, that 

could make the difference and that would allow us to be head to 

head with oil. 

The problem we have today is we are dealing with an industry 

that has a 90 percent monopoly. If we can truly open up that marVerDate Nov 24 2008 00:20 Mar 27, 2012 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\71626.TXT MICHA
22 

ket, the incentive becomes far less important to the industry. But 

today it is very important because we are competing in a marketplace where we are restricted to 10 percent of the market. 

Senator JOHANNS. I will just wrap up and say you have caught 

my attention with that. I hope you will work with us, the ranking 

member and the chair. That they have some possibilities. 

Thank you. 

Chairwoman STABENOW. Thank you very much, and I do want to 

just mention for the record with the advocacy and hard work of 

Senator Johanns and many of us working on this 1099 issue, we 

are actually going to get this fixed. So you are not going to have 

to do that. That would take effect in January of next year, and I 

want to thank the Senator for his efforts on that. 

Senator KLOBUCHAR. Senator KLOBUCHAR. Thank you very much, Madam Chair. 

Thank you to all of you. I thought it was really good testimony, and 

I am just excited about some of the numbers we are getting out 

there on developing our own American energy, home-grown energy. 

The North Dakota oil right next door to Minnesota, we see a doubling there of production since 2008. But most importantly in my 

State we see the value of biofuels. 

I was really quite shocked myself, despite what I see in South 

Dakota, Mr. Broin, and Minnesota to know that we are now almost 

making as much biofuels as we import oil from Canada. 

I think people do not quite understand what a major part of the 

market these home-grown fuels are and what the devastating effect 

would be if we suddenly pulled the rug out from under this industry. 

And I guess my first question would be of you, Dr. Newell. There 

are proposals, and by the way I have a bill with Senator Johnson 

to ease down the VTECH issue and to acknowledge we are going 

to have to make changes there. 

I appreciate Mr. Broin’s testimony; but if we were to suddenly 

just get rid of any kind of support for ethanol as there is actually 

a motion now that would not even be in the context of a comprehensive energy plan where we maybe ease down that, do some 

things with oil to even the marketplace as well with oil subsidies, 

what do you think the effect would be on the marketplace? 

Mr. NEWELL. Well, there are a number of different things that 

affect the production of ethanol, both market and policy related. 

There is the blender’s credit for ethanol. There is the renewable 

fuels standard for ethanol, and then there is also the price of oil 

and gasoline with which ethanol is competing in the marketplace. 

So all of those things matter. 

In terms of the blender’s credit, right now the most important 

binding force on the level of ethanol production the renewable fuels 

standard as opposed to the blender’s credit. 

And so removing the blender’s credit would not necessarily 

change the volume of ethanol significantly because, assuming that 

the renewable fuel standard was maintained, because it would continue to mandate that that happens. 

But there is, even if both of those policies were removed, there 

would still be a level of ethanol particularly now that there has 

been significant capacity built that would be competitive given curVerDate Nov 24 2008 00:20 Mar 27, 2012 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 C:\DOCS\71626.TXT MICHA
23 

rent oil prices and the oil prices that we project. I would guess it 

would be smaller than what we currently see, given the renewable 

fuel standard and blender’s credit. 

But I do not think it would go to zero. Exactly what that amount 

would be, we have not done any specific analysis. 

Senator KLOBUCHAR. A Chicago Tribune story, and I have asked 

other experts this, say that if we cease to produce ethanol, like if 

we just got rid of it, which by the way there are some of my colleagues that think we should do this, that the price would go up, 

if we ceased to produce the 14 billion gallons of ethanol that we 

make every year, prices would go up at the pump by as much as 

$1.40 per gallon. This would be if we eliminated it. 

That is my concern, Mr. Broin, if we made some sudden change 

without any plan what do you think the effect would be on the industry? 

Mr. Broin Without question, there would be some point in the 

near future where you would see production capacity curtailed and 

it would, I am sure, have an impact on prices. 

There would be less fuel supply in the market which I assume 

would drive prices up. So it would have an impact. 

Now, again, that is because we are competing with someone that 

has a 90 percent monopoly. If we can open up the market, that becomes a different discussion; but today we are competing against 

ourselves basically, competing against ourselves in a regulated 

market. 

Senator KLOBUCHAR. Exactly. One of the things I often hear on 

the argument here is that the 25 percent, you know, that the oil 

companies are not really getting some sort of subsidy; but when 

you look at the breaks that they get for the taxes, I think it goes 

down from, like, 25 percent to 9 percent of what they are actually 

paying in taxes. 

And it is hundreds of billions dollars that they have gotten over 

the years. So I think people have to remember that, that you are 

going against the tide here when you are going against a 90 percent monopoly. 

Mr. Berkovitz, I just have a quick question. I talked to Mr. 

Gensler, Chairman Gensler, about the speculation issue, sent him 

a letter. We had a good talk this week. 

I would just want to re-enforce the need to get these rules out. 

While I support a strong exemption for companies like everyone 

from Delta Airlines to Cargill that are legitimately hedging their 

bets on the prices, I am very concerned about the 60 percent of the 

speculators now that are out there for different reasons, and I wonder what the timetable you thought would be for getting these 

rules done. 

Mr. BERKOVITZ. Thank you, Senator. 

For the speculation rules in particular or? 

Senator KLOBUCHAR. The position limit rules. 

Mr. BERKOVITZ. Thank you. The position limit rule, as I mentioned, the comment period closed this past Monday. 

Senator KLOBUCHAR. Right. 

Mr. BERKOVITZ. The count that we have now is 5700 public comments on that rule. So we, as required by the Administrative Procedure Act, we will be carefully reviewing all of those comments. 

24 

Chairman Gensler has laid out his vision of the schedule going 

forward for all of the rules and the chairman has stated that his 

goal would be to have this rule in the middle of the package of 

rules, going to final rule with a goal of having that sometime this 

summer, that set of rules. 

And so the positions limits under that goal would be within that 

middle tier, and the chairman said hopefully this summer. 

Senator KLOBUCHAR. Okay. Very well. Thank you. 

Chairwoman STABENOW. Thank you very much. 

We will start with the second round on questions; and I very 

much appreciate again your really excellent testimony this morning; and I think to follow up, Mr. Berkovitz, on what Senator Klobuchar was talking about in terms of what is happening, concerns 

about how do we analyze what information that we have now really to look at supply versus demand versus what is happening, concerns about excessive speculation, we do not yet have a real picture 

on the swaps markets. Transparency is certainly a part of what we 

passed but I know you are still collecting information on this. 

So I am wondering what you can provide us, and more importantly, provide consumers and American farmers at this point 

about the most recent understanding of current oil and other commodity prices and increases as to whether they accurately reflect 

supply and demand fundamentals, I mean, what is missing, what 

could be missing from the current analysis, what is your thinking 

about what is going on right now in the marketplace? 

Mr. BERKOVITZ. We have a very active surveillance function 

within the commission. The surveillance office gathers data regarding the market fundamentals and analyzes that. We have weekly 

briefings with the commission. It is very active in terms of ensuring the integrity of the markets, ensuring that trading is fair and 

orderly and there are no undue influences on the market or market 

disruption. 

So we are watching very carefully the markets and taking that 

as part of our surveillance function, looking at the market fundamentals. 

Chairwoman STABENOW. At this point, are there red flags and 

what are they finding? 

Mr. BERKOVITZ. We are very carefully looking at that and evaluating. And where there is enforcement action or other appropriate 

action, the commission will take it. 

Chairwoman STABENOW. Thank you. 

Mr. Broin, I had talked a little bit earlier about advanced 

biofuels, cellulosic ethanol in asking Dr. Dale about, you know, how 

do we get to large scale production. 

I know that you indicated in your testimony that you have 300 

jobs that are being created from a plant or a series of plants, I am 

not sure which it was, but certainly we were talking about scaling 

up and creating jobs. 

But at this point, again what can we be doing more quickly? I 

hear loudly and clearly your concern about stable public policies 

and agree strongly with that that we need to send stable long-term 

policy so that we are creating a marketplace where business decisions can get made, investment decisions, and so on. 

25 

But we have been in the last Farm Bill again with the cellulosic 

ethanol tax credit and with other efforts, and as we look to this 

next Farm Bill and the energy title and so on, you know, what 

should we be doing at this point time in order to get us to the place 

where we can receive the benefit from the large quantities that we 

are talking about this morning of alternatives to oil? 

Mr. BROIN. For these first few plants it is really critical that we 

are able to access the loan guarantee program, and we have been 

working with them for quite some time and we are making 

progress and to make that streamlined and efficient and make sure 

that it is funded, because we do not need loan guarantees forever. 

But the first couple plants do. 

Once we have established the technology, it will be easy to finance them. In addition, we need to continue to support programs 

like BCAP. We are trying to get farms to collect a product they 

have never collected before. 

And while I think POET is as good as anyone on the planet at 

dealing with farmers, we really understand how to deal with them, 

if they see the government wavering in their support of a government program, they back away. 

It is hard enough to get them to the table in the first place to 

produce a brand new cellulosic product. We have 85 farmers that 

delivered 100,000 tons of cellulose this past fall, but we need 385. 

The next 300 are not going to come if they see the first 85 not 

getting paid through the BCAP program on issues of not seeing 

funding. So it is very important to have stability around government policy in these areas. 

Another point I wanted to touch on, if I may, for just a moment 

is, you know, we have been awash in grain in this country my entire lifetime and I still think there is a tremendous amount of opportunity in grain ethanol as well. Over the next 20 years we are 

going to double our grain yield in this country and that is more 

starch that can also go to ethanol while protein can go to the feed 

and food markets as well. 

So we continue to see opportunities for both products. 

Chairwoman STABENOW. Right. Thank you. 

And finally, I have, Dr. Dale, just talk about Michigan for a moment since that is something of great interest to both of us. 

And I am wondering as we look at the potential for advanced 

biofuels, not only around the country but in Michigan, what you 

see as the potential for us as a net fuel producer. 

I know you have worked with the Mascoma project up in 

Kinross, up to our Upper Peninsula, which is going to utilize hardwood, pulp as a feedstock, but just as you look at Michigan, what 

are the opportunities for us? 

Mr. DALE. Michigan, as well as almost every other state in the 

country, can become a net fuel exporter if they choose to. We have 

the land resources. We have the agricultural knowledge. If we continue moving forward with these alternatives with the stable policies and making sure that Michigan and almost every other state 

with any sort of an agri/forestry base can produce its own fuel. 

Chairwoman STABENOW. Great. Thank you very much. 

Senator ROBERTS. 

26 

Senator ROBERTS. All you need is some good luck on your basketball team. 

Chairwoman STABENOW. There is always next year. 

Senator ROBERTS. Always next year. Being from K State I agree 

with that 

Chairwoman STABENOW. That is right. 

Senator ROBERTS. And KU for that matter. 

Mr. Newell, you state in your testimony that events such as unrest in the Middle East and North Africa, earthquakes in Japan or 

that terrible tragedy change expectations of future oil and supply 

demand, that is for sure, and increase the uncertainty of those expectations. 

Do I correctly understand you believe that supply and demand 

factors primarily, the key word here is ‘‘primarily’’, are driving up 

oil prices rather than speculation in the derivatives market being 

the culprit? 

Mr. NEWELL. Well, there is—— 

Senator ROBERTS. Primarily. 

Mr. NEWELL. Right. The nuance to answering the question is 

that we have had—— 

Senator ROBERTS. So the answer is yes but go ahead. 

Mr. NEWELL. We have had in Libya an actual loss of supply. 

They typically would export 1.5 million barrels per day. So that is 

off the market, clearly a supply side fundamental that would point 

in the direction of higher prices. 

There is also an increased perception of risk in the market given 

the importance of that region and the general unrest in the region. 

Now, that has not yet resulted in a current physical loss of supply but it has raised the possibility that there could be one in the 

future. 

And that actually does enter in through activity in futures markets, and so in that sense there is a close tie between current spot 

prices and future places, and future prices depend upon not what 

is happening today but what we think might will happen in the 

next few months or the next few years, and so it is that sense in 

which they are tied. 

But I think one could attribute the recent run-up in prices over 

the past several weeks to supply-side concerns, both actual and 

perceived increase in risk. 

Senator ROBERTS. I appreciate that. Can you quantify, if there is 

any way could you quantify the additional dollars that the U.S. 

consumers have spent on gasoline in 2010 as opposed to 2009 due 

to the depreciation in the value of the dollar against other currencies? 

Mr. NEWELL. I would not have that number. No. 

Senator ROBERTS. All right. 

Mr. Berkovitz, the CFTC just received or just levied an adjustment, that is a very nice word for a fine, totaling several hundred 

thousand dollars against the National Futures Association and the 

commodity exchanges for a mistake made by the CFTC in calculating the CFTC enforcement fees for the past fiscal years, years 

in which the CFTC had already sent the bill which had been paid. 

This is has never been done before. 

27 

By what authority are you penalizing these folks for a CFTC 

error? 

Mr. BERKOVITZ. Senator, the notice that we sent to the entities 

that you described, it was not a penalty. It was an adjustment because the agency had made an error in the original calculations. 

Senator ROBERTS. But they are going to have to pay it, right? 

Mr. BERKOVITZ. They will have to pay the additional amounts, 

yes, Senator. The agency is obligated by statute to collect the 

amounts due the agency. It is regrettable the agency made the initial error, but we are obligated under the federal debt collections 

statutes to collect that debt owed to the United States. 

Senator ROBERTS. I am not particularly happy with that response. 

The CFTC has issued a proposal to impose federal position limits 

on speculation in energy and metals contracts in futures and 

swaps, and I have been told that the only study the CFTC cited 

in support of its proposal was issued by the Federal Trade Commission in 1926. That was when Stan’s great great great great grandfather was farming his land. 

My question is, do you have some more modern economic analysis to support that proposal? 

Mr. BERKOVITZ. Senator, that rule is out for public comment. We 

are evaluating the comments and we have received some comments—— 

Senator ROBERTS. I know the comments. I am talking about the 

analysis to justify it. The President issued an executive order here 

January 18, saying that many regulations are duplicative, costly, 

and in some cases, stupid. His words not mine. Asked all the federal agencies to come up with a cost benefit analysis to justify the 

current regulations and the new ones. 

I was told by your chairman that that did not apply to you folks 

at the CFTC because you are different because of something about 

congressional intent or you are a sub-agency or you are an independent agency; and then there is a whole paragraph of things that 

you could, you know, justify how you are exempt from these regulations. That is what I am really trying to figure out. 

Will the CFTC’s imposition of federal position limits lead to 

lower energy prices for consumers? And what is the economic theory supporting this belief? 

Mr. BERKOVITZ. I cannot answer the question of what the energy 

prices on consumers are. I can say, Senator, in response to the 

question regarding cost benefit and information supporting the rule 

that we have received those comments and we are looking at that 

very issue in terms of the cost benefit analysis, in terms of the proposed speculative limits of those rules. 

Senator ROBERTS. So you are going to comply with Executive 

Order? 

Mr. BERKOVITZ. We are looking at the Executive Order to determine in which instances we can comply with the Executive Order 

consistent with the statute that we are operating under which determines—— 

Senator ROBERTS. I know the chairwoman and I would appreciate that as would the rest of the members of the Committee. 

28 

I would just say whether it is $108 million in the original CR sent over by the House or $168 million which you get now or $302 

million recommended by the President in his budget, I am not sure 

that you are going to produce one gallon of gas. 

I know that you are going to certainly try to produce transparency and aim at the speculation problem. However, I do not 

know. Maybe we could have a year’s vacation from these regulations, and we could actually change your purpose. We could have 

the Lafayette Center refinery be one of the first ones built in many 

years. 

You could do that. That would certainly add to a gallon of gas. 

I am being very facetious here and I apologize for that. You should 

not be on the receiving end of that. 

I still have one minute. 

Chairwoman STABENOW. Yes. 

Senator ROBERTS. Thank you very much. You just want me to get 

done. I know you want to get done. All right. 

Has the CFTC analyzed the possible costs and benefits, and I am 

still continuing under the President’s Executive Order umbrella 

here, of its position limit proposal? What is the CFTC’s estimated 

dollar value of the cost of its proposal? How did the CFTC arrive 

at that number? 

I think that question is premature right now because you are 

going through that study so I am going to skip that and try to get 

to my last question. 

Mr. Broin, we have the tightest corn stalks used ratio in history. 

What has been the biggest impact on today’s corn price, the world 

corn demand, ethanol demand, smaller corn supplies or speculative 

interest in the futures market? 

Mr. BROIN. Certainly, supply and demand has played a role in 

increasing grain prices and actually brought them to sustainable 

levels. But speculation has made the markets extremely volatile. 

There is a tremendous amount of speculation put out on the markets by non-commercials, people that do not use corn, never intend 

to take delivery of the corn. 

And that has, without question in my opinion, added a lot of vulnerability to the market. 

Senator ROBERTS. Madam Chairwoman, I am out of time. I 

would like a third-round if it is possible but I would certainly yield 

to you at this particular time. 

Chairwoman STABENOW. Thank you. Just one question, and then 

I will be happy to let you finish up. 

Mr. Broin, I guess back to you. But in your testimony, you talked 

about the blend wall and the new obviously rules that are coming 

out for ethanol and support removing it and adjusting it and so on. 

I wondered if you could respond to some folks that had visited 

with me yesterday, actually in this very room, from the Michigan 

snowmobilers who were concerned, and I have heard this from engine manufacturers as well, about the affect it will have on small 

engines. 

I wondered if you might respond at all to the concerns that they 

have about going to E15. 

Mr. BROIN. Sure. We are certainly not taking away unleaded gasoline or E10 which works just fine in those small engines. E15 will 

29 

be an option for the consumer. It will be labeled at the pump, not 

for small engines. 

And so they will still have the other fuels to put in those engines. 

So it seems to be somewhat of a mute point to me. 

Chairwoman STABENOW. Thank you. 

Senator ROBERTS. Senator ROBERTS. Again, Mr. Broin, in your testimony regarding 

the production of corn ethanol and cellulosic ethanol in the same 

plant, you mentioned that you use a byproduct of cellulosic production to power the plant. 

Could you explain that process further? 

Mr. BROIN. Absolutely. Actually what we will do in the ethanol 

industry is build the cellulosic plant right next to the grain plant. 

That plant will take the light stover base to the cobs and the leaves 

and the husks off the same acres that we get the corn off of. 

We will process the cellulose and hemi-cellulose and ethanol. The 

byproduct of that process is lignin, and there is enough lignin coming out of the back of a cellulosic plant to power both the cellulosic 

plant and a two ex size grain plant right next to us and export 

power after that. 

So it is a tremendous greenhouse gas move for not just the cellulosic plant but the grain plant right next to it. And we are very, 

very excited about what that is going to do for the industry. 

Senator ROBERTS. I share your excitement. We are trying to 

build one in western Kansas if we can get past some of the legal 

ramifications. 

Mr. Dale, your testimony recommends extensive adoption of double cropping of grasses and legumes on corn and soybean fields. Is 

such an extensive use of double cropping possible in most regions 

of the U.S.? 

You can ask Stan about that. 

Mr. DALE. Thank you. No, it is not appropriate for all regions of 

the country, but we actually have colleagues up at Penn State University, Dr. Tom Richard, who with a group of people from the 

USDA looked in detail at what areas of the country where it could 

be done. So they looked at soil types, winter rains, and all the factors that go into it, and they believe that our estimate is actually 

too conservative. 

They think that you can produce about 200 million dry tons per 

year of mostly winter rye and some other things in the areas of the 

corn belt, if you will, that get a lot of wet weather. 

So it is not applicable everywhere but it is applicable in a lot of 

places and a lot more, in fact, than we analyzed. 

Senator ROBERTS. This is a basic question in regards to cellulosic. So Mr. Broin and Mr. Dale, feel free to state what your opinion might have. 

We have heard of all the promise of cellulosic ethanol but it is 

obvious we still have some issues in the way of making this technologically commercial and viable. 

You mentioned in your testimony that vehicles require liquid 

fuels. That is obvious right now. Are we any closer today to converting all of this what some people call mass of stuff, i.e., organic 

material, out in the field or the forest into a presumably liquid 

form so we can actually transport it more efficiently for further 

30 

processing? Should we even consider that in the Finance Committee in regard to a tax incentive? Where are we? 

Mr. Broin Yes, we are. I can speak as a person and company that 

has invested heavily in the research and development around cellulosic ethanol. We have been operating a pilot plant for two and a 

half years. 

We have decreased the price of producing a gallon of cellulosic 

ethanol from $4.13 a gallon to about $2.30 a gallon. 

While not yet competitive with grain ethanol, that is certainly 

competitive with gasoline. So we have come a long, long way. 

Again with the approval of our loan guarantee, we will be starting construction on Project Liberty this year. We will start operation next year, and we have actually committed, I do not know if 

you heard about it or not but we have committed to a three and 

a half billion gallon amount of the RFS by 2022 at our company. 

So we have said we will take three and a half billion gallons of 

the 16 billion gallons by 2022, and I think we can outperform that. 

We are probably being a little bit conservative. 

Senator ROBERTS. I appreciate that detail. 

Mr. Dale, do you have any comment? 

Mr. DALE. Sure. Just one additional thing. It is being more and 

more recognized that we have to figure out ways to densify cellulosic biomass as close to the point of harvest as we can. 

You can convert it to a liquid. You can make it into a dense solid. 

But we have to do that so that we can establish the logistics for 

large scale systems. 

Mr. Broin has referred to one way. There are other ways that are 

being looked at and being developed quickly. 

I do want to answer one question that you did not ask, if you will 

permit me. I was a new father, a 23-year-old father, when we had 

the first oil embargo. President Carter and those responding said 

we needed to get off foreign oil. Every president since then has said 

that. 

Now I am a 61-year-old grandfather, and I am really concerned 

that my grandkids have a better, more stable economic environment than we have had recently. 

So what we have to realize is this is going to take decades to do 

this. We use about 140 billion gallons of gasoline in this country 

every year and that it is going to take decades to get to a very, very 

large-scale replacement of that. 

I wish I could be more optimistic but it is just going to take 

awhile. We have to keep going down the path we are going and not 

let ourselves be diverted because if we do not we are going to have 

a worse situation than it is. 

But it is going to take a long time. I realize there is the shortterm pain. I understand that. But we have to look at long-term solutions also, and we just have to continue. We can do it with cellulosic and other biofuels but it is going to take decades. 

Senator ROBERTS. Mr. Dale, I want to thank you for that comment. It is not either/or. I just mentioned the tremendous impact 

that the oil and gas industry has in Kansas and what we rely on, 

and other states as well. 

31 

And I think sometimes that we get overly excited about one particular source of energy over another. Obviously, the situation in 

Japan now affects that as well but I think it is any and all. 

That does not mean that you are picking and choosing so much 

as it is that you know that it is going to take a long time. 

The chairwoman and I are very much aware that in the next several decades we are going to see the population of the planet go 

from 6 billion to 9.3 billion people. 

I heard the term awash in grain. We are going to have to double 

our ag production to feed those folks, and that is a moral imperative. It started with Eisenhower and the Food for Peace Program, 

and others as well. 

It is also a national security issue as well. In terms of any country that cannot sustain itself to feed its people, then you get into 

trouble. Then you get into problems that we see in the Middle 

East. 

It is not only a problem for agriculture and for the farmer and 

rancher whose job it is that Stan has so elegantly spoken to but 

it is also a matter of feeding an increased population. 

So I am not sure how to do this, Madam Chairwoman, but we 

are dedicated to that and I think your comments are certainly commensurate with that goal. 

And I thank the chairwoman and I thank the panel. You have 

done an excellent job and thank you for taking time out of your 

very busy schedule to come and testify before us. 

Chairwoman STABENOW. And I would just say thank you as well 

and join with my partner and ranking member in focusing on the 

challenges that we have, and I would only add that I think what 

is important that has come from today, one of the messages is that 

we have put in place a way to be able to create competition for foreign oil, an American-made source, homegrown fuel, and that we 

are making progress. 

I think often times we do not hear that. You know, we hear concerns. Certainly, there are various concerns that are legitimate 

about how we move forward but I think we have heard today very 

clearly that we are making progress and that we need to continue 

to do that. That, in fact, part of our solution, and it could be a very 

big part depending on how much we are willing to be committed 

to it really comes from American agriculture and what we can do 

through focusing on advanced biofuels and the ability to have 

homegrown energy which is certainly in all of our best interests. 

So thank you very much. We appreciate the excellent panel 

today. 

[Whereupon, at 12:13 p.m., the Committee was adjourned.] 

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A P P E N D I X 

MARCH 30, 2011 

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67 


71626.034
68 


71626.035
69 


71626.036
70 


71626.037
71 


71626.038
(73) 

QUESTIONS AND ANSWERS 

MARCH 30, 2011 

74 


71626.039
75 


71626.040
76 


71626.041
77 


71626.042
78 


71626.043
79 


71626.044
80 


71626.045
81 


71626.046
82 


71626.047
83 


71626.048
84 


71626.049
85 


71626.050
86 


71626.051
87 


71626.052
88 


71626.053
89 


71626.054
90 


71626.055
91 


71626.056