The Impacts of an R enewable Fuel Standards (RFS) waiver on the

Livestock , Dairy , and total P oultry production Sectors for the United States, Arkansas, Delaware, Georgia, Florida, Maryland, New Mexico, North Carolina, Texas, Utah, Virginia, and Wyoming

T he fo llowing assumptions are made in estimating the impacts of an RFS

waiver on feed cost per unit of livestock, poultry, and dairy product as well

and total feed costs with and without a mandate at the national level and for those states that have petitio ned the EPA for a waiver :

Ass umptions for the analyses :

The l ivestock sector is segmented into Fed Cattle, Cow

- Calf, and Hogs. The poultry sector is segmented into Young Chickens (broilers), Turkeys and Eggs. Dairy is the other animal agriculture inc luded in the analysis.

F eed is equal to the sum of feed and residual use of corn, sorghum, barley, oats and the domestic use of soybean meal. Three corn price deltas, defined as the difference in corn price with

the mandate and without the mandate , formed the basis for the 2012/13 corn marketing year waiver analysis:

o ALT 1

- Average ( 100 percent of the Iowa State Model Runs)

, $0.07 per bushel price reduction without mandate, a 0.8 percent
percent decline.

o ALT 2

- Binding Mandate (11 percent of th e Iowa State Model

Runs ), $0.58 per bushel price reduction without mandate, a 7.4 percent decline.

o ALT 3

- Worst case (1 percent of the Iowa State Model Runs), $1.86 per bushel price reduction without mandate, a 23. 8 percent decline. Projected prices for sorghum, barley, and oats in 2012/13 also decline by same percentages as the corn price without the mandate for the

three alternatives assessed. The price of the soybean complex (beans, meal, and oil) did not change with or without the m andate in the t hree alternatives assessed (based on Iowa State Model Runs)

.Feed grain prices in each of the 11 states that petitioned EPA are

equal to national average feed grain prices

. Livestock prod uction, poultry production, and dairy (milk) production

in each of th e 11 states that petitioned EPA a re projected to increase

from 2011/12 to 2012/13 similar to US projections of livestock, poultry, and dairy reported in the October 11, 2012 World Agriculture Supply and Demand Estimates (WASDE), USDA.

T he c attle feeding s imulator for High Plains used to estimate feed

costs for cattle on feed for the US and Texas , the only state petitioning EPA with reported cattle on feed.

Per unit feed costs for cow

- calf, dairy (milk), and hogs (feeder pigs to finish) by state are based o n USDA Economic Research Service (ERS) commodity costs and returns.

An ERS poultry analyst provided the following corn and soybean

meal feed ration estimates for young chicken, turkey and egg production: 1.9 and 2.9 pounds of feed (69 percent corn a nd 26 percent soybean meal) is require per pound of live weight gain for young chickens and turkeys, respectively

. Four pounds of feed (80 percent corn and 20 percent soybean meal) is required per dozen eggs produced.

Methodology:

The following methodo logies are used to estimate feed costs per unit of livestock, dairy and poultry production with and without an RFS waiver for the United States, Arkansas, Delaware, Georgia, Florida, Maryland, New Mexico, North Carolina, Texas, Utah, Virginia, and Wyoming

, as well as

total feed costs at the national level and for the same states, again with and

without an RFS waiver

.

USDA’s Economic Research Service 20 1 1 commodity cost s and returns for hog, milk

, and cow

- calf production for the United States an d select regions (the 11 states of interest are assigned to the appropriate farm resource production regions defined by ERS ), and cattle feeding simulator for High

Pla ins (Texas and US average) are used as the basis to project the feed cost s

per livestock, dai ry and poultry production unit. The cattle fed and cow

- calf

are measured in head (commercial slaughter)

, hogs in pounds

, milk in pounds

, young chickens (broilers) and turkeys in pounds (live weight)

, and eggs in dozen s. The 2011 feed cost (net of any grazing) per unit ofproduction is estimated for 2012 and 2013 by multiplying the 2011 estimate

by the appropriate percentage change in corn prices, with the mandate and

without the RFS mandate.

The URL for the ERS commodity costs and returns is:
http://www.ers.usda.gov/data

- products/commodity

- costs

- and

- returns.aspx

U.S. Farm Resource Regions

Source: Economic Research Service: http://webarchives.cdlib.org/sw1wp9v27r/http://www.ers.usda.gov/Briefing/ARMS/resourceregions/r esourceregions.htm#older

ERS does not have costs and retur ns estimates for poultry production at the national or regional level. Personal contact and conversation with an ERSpoultry specialist yielded the conversion ratios of a corn

- soybean meal feed

ration to live weight gain and eggs produced: 1.9 and 2.9 pou nds of feed (69

percent corn and 26 percent soybean meal) is require per pound of live weight gain for young chickens and turkeys, respectively; four pounds of feed (80 percent corn and 20 percent soybean meal) is required per dozen eggs produced. The cost per feed per unit of production for poultry segments is based on these feed ration conversions and the corn and soybean meal price changes for the average, binding mandate and worst case scenarios.

Total feed costs with and without the RFS mandate a nd the change in feed costs, with and without the mandate, are estimate for each of the livestock (fed cattle and cow

- calf) and poultry (young chickens, turkeys, and eggs) production segments, dairy and hogs at the national and for the states of

interest f or which data is available. Feed costs by livestock, dairy and poultry are derived by multiplying the per unit production feed cost, with and without the RFS mandate, by total production for the nation and each state. The difference, with and without mand ate is computed. Totals are summed across livestock, dairy, and poultry.

Poultry The majority of chicken slaughter in the United States is young chickens (broilers) and the remainder, less than 2 percent of the total over the 2009

- 2011 calendar years, is mature chickens. Historical U nited States and state level young total chicken , turkeys and egg production are reported by

USDA. P roject ions at the national (US) level for broilers, turkeys, and eggs

are found in USDA’s World Agricultural Supply and Demand Estimate (WASDE)

. Monthly data was used to develop marketing year production by state through 2011/12.Total chicken and turkey live weight slaughter and total eggs produced for

each state are increased or decreased by the same percentage change in

b roiler, turkey, and eggs produced and reported in the October 2012 issue of the WASDE for the 2012/13 marketing year.

Total feed costs are derived by multiplying the per

- unit feed cost with and without the mandate by poultry and egg production.

Ho gs and pigs Monthly data was used to develop marketing year production by state through 2011/12. Total live weight commercial hog slaughter for each state

is increased or decreased by the same percentage change in total US pork production as reported in the October 2012 issue of the WASDE for the 2012/13 marketing year. Monthly data was used to develop marketing year production by state through 2011/12.

Total feed costs are derived by multiplying the per

- unit feed cost with and without the mandate by pork production.

Dairy Calendar year data was used to develop marketing year production by state through 2011/12. Total milk production for each state is increased or decreased by the same percentage change in total US milk production as

report ed in the October 2012 issue of the WASDE for the 2012/13 marketing year (2012q4

- 2013q3).

Total feed costs are derived by multiplying the per

- unit feed cost with and without the mandate by milk production.

Cattle Percentage changes in t otal US beef pr oduction are used to project the

number of fe d cattle marketed and cow

- calf slaughter in US and the 11 states

of interest.

Fed cattle and cow

- calf production are based on t otal commercial cattle slaughter . Historical monthly data are used to develop marketing year estimates of commercial cattle slaughter and commercial calf slaughter for the United States and for the 11 states of interest (Delaware and Maryland report collectively) through 2011/12 marketing year (Oct.

- Sept.). Texas isthe onl y state of those petitioning the EPA for which cattle on feed data are

reported. S ubtra cti ng fed cattle marke te d f ro m total cattle slaughter for the

United States and Texas results in an estimate of other cows slaughtered. This figure is then added to calves slaughter ed

.

The above steps lead to an estimate of 2011/12 fed cattle and cow

- calf production. Cattle fed and cow

- calf production is projections for the 2012/13 year for each state are increased or decreased by the same percentage change

in t otal US beef production as reported in the October 2012 issue of the WASDE for the 2012/13 marketing year (2012 Q 4

- 2013 Q 3).

Total feed costs are derived by multiplying the respective per

- unit feed cost with and without the mandate by fed cattle and co w

- calf production.

RESULTS

Three scenarios were examined, relative to a 2012/13 base year. These are

identified as the “ $0.07 Scenario ”

, “ $0.58 Scenario ” , and the “ $1.86

Scenario ”. Production levels under all three scenarios remain constant at the

nat ional level and for each state. Tables 2 through 6 reflect historical and projected production at the national and state level for the livestock, dairy and poultry segments evaluated. Table 2 presents the information for production of beef (

- 3.3 percent ), pork (

- 0.2 percent ), broilers (

- 1.3 percent ), turkey (

- 2.0 percent ), eggs (

- 1.4 percent ), and milk (

- 0.5 percent ) at the national level and projections for the 2012/13 year

, which drive the detailed livestock, dairy and poultry segment projections at the state level.

Tables 1, 7, and 8 depend on the corn price difference identified and will differ by scenario.

The October 11, 2012 WASDE was used to estimate total feed use and prices for 2012/13 . For this analysis feed use is equal to the su ms of feed and residual use of corn, sorghum, barley, and oats as well as domestic use of soybean meal. Total feed grains and soybean meal demand declined from

185.7 million tons ( mm

t) in 2008/09 to 163.8 mmt 20 11/12 8 and is expected

to decline to 150.3 m mt in 2012/13. The weighted value of the feed fluctuated over that time from a low of a $159/st in 2009/10 to a high of $255/st in 2011/12. Based on the midpoint of the price ranges reported in the WASDE, feed will rise to $318/st without a waiver. Under t he threescenarios, without the RFS mandate corn and other feed grain prices will

decline by an estimated $0.07/bu for the “ $0.07 Scenario ”

, by $0.58/bu for

the “ $0.58 Scenario ” , and by $1.86/bu for the “ $1.86 Scenario ”, and respective declines in the wei ghted feed costs to $31 7 /st ( 0.5 percent ), $302/st ( 5.2 percent ), and $ 265/st (16.7 percent ) relative to the 2012/13 base of $318/st. See Table 1 for each of the scenarios.

Table 7

, $0.07 Scenario

— shows the feed cost per unit of production for

chick ens, turkeys, eggs, hogs, fed cattle, cow

- calf, and milk production for United States and for select states. State information is reported for hog production (feeder pig to finish), cow

- calf production, and milk. The ERS reports commodity costs and ret urns for select regions for which states have been assigned.

Feed costs per unit of production decline in general by about 0.6 percent with a waiver relative to the without waiver cost. This is approximately the same percentage decline in corn prices. T he exception is for the poultry segments which are based on a feed ration that includes corn and soybean meal. Meal prices are not affected by the relaxing the mandate and approving a waiver. So only a portion of the feed costs adjust with a drop in

corn p rices. Poultry per unit feed prices do not decline as much as per unit feed costs for cattle on feed, cow calf, milk, and hog production on a percentage basis.

Broiler, turkey, egg and fed cattle marketed per unit production costs are estimated only at th e national level and applied to the states where production is observed. Poultry segments per unit costs are based on a corn and soybean meal ration: for young chicken, turkey and egg production: 1.9

and 2.9 pounds of feed (69 percent corn and 26 percent s oybean meal) is require per pound of live weight gain for young chickens and turkeys, respectively

. Four pounds of feed (80 percent corn and 20 percent soybean meal) is required per dozen eggs produced. The cost to produce 100 pounds of live weight chick en and turkey is $30.24 and $46.16, respectively, without the waiver and $30.09 and $45.92, respectively with the waiver. There is a $0.37/dz in the cos t to produce eggs with and with out the waiver.

Texas is the only state to petition the EPA that is assu med to produce fed

cattle. The c attle feeding simulator for High Plains used to estimate feed

costs for cattle on feed for the US and Texas . The feed cost differential per head to produce is less than $4.00 per head produced.Table 8, $0.07 Scenario

— pr esents the estimated total feed costs by animal

product by state, with and without a waiver of the RFS mandate, and the

difference in between feed costs with and without the mandate. At the

national level the decline in corn prices of $0.07/bu results in an estimated $452 million drop in total feed costs. In absolute terms, milk producers would be expected to see a $189 million reduction in feed costs, about 40

percent of the total. Cattle (fed and cow calf) producers would expect about a $104 million red uction in feed costs, nearly 23 percent of the total.

Looking across states, Georgia and North Carolina poultry and egg producers could be expecte d to reduce feed costs by $ 6.7 million and $ 5.9

m illion. Across the United States, chick en pro ducers are e stimated to save approximately $ 74 million. Cattle producers in Texas, the only state assumed to produce fed cattle

, account for $ 3 0 million of the national saving attributable to a waiver being granted.

The impacts o f RFS waiver on CPI for food, $0.07 Scenario , would decline by 0. 04 percent and the CPI for all items would decline by 0.0 06 percent. It

would take 1

- 3 years for the above price change to be fully reflected at the retail level, since it would take that lo ng of a period for dairy, beef and hog producers to fully adjust to the changes in feed costs. For the $ 1.86

Scenario , the CPI for food would decline by 1.13 percent and the total CPI by 0.158 percent. The change in annual household expenditures on food ar e estimated to be less than $75 per household, under the $ 1.86 Scenario

,

Comparable tables are attached for all scenarios.TABLES FOR $0.07 ScenarioTABLES FOR $0. 58 ScenarioTABLES FOR $ 1.86 S cenario