Livestock industries have joined forces in urging the Environemtal Protection Agency (EPA) to waive part of the mandate that effectively requires corn ethanol be blended with gasoline.

They hope this will then free up more corn onto the market and help control escalating feed prices.

However, a recent report, "Potential Impacts of a Partial Waiver of the Ethanol Blending Rules," says that corn prices would only fall under certain market conditions.

The report suggests that corn prices could fall under some scenarios should the U.S. Environmental Protection Agency grant a partial waiver of the Renewable Fuel Standard's corn ethanol provision - but only under certain market conditions.

A waiver could, under certain conditions, reduce the demand for corn and, thus, corn prices for livestock producers and other non-ethanol corn buyers. The ethanol industry and corn grower organizations oppose the waiver.

Under its normal schedule the EPA has until October to gather information on the extent of any economic harm done by the original Renewable Fuel Standard level and to decide if it will issue a waiver. For consumers, the decision could affect what they pay for fuel and food.

"The range of impact of an RFS waiver goes from zero to $1.30 per bushel for corn," said Wally Tyner, an energy policy specialist and the report's lead author.

With corn crops shriveling in the field and yield projections dropping almost weekly, corn prices have jumped 60 per cent since June 15. A bushel of corn has topped $8.

The prospect of a diminished crop and even higher corn prices has livestock producers worried that corn might not be available or will be too expensive to buy. Corn is a feed mainstay for most livestock operations.

This year the RFS mandates oil companies blend 13.2 billion gallons of ethanol with the gasoline they produce. The mandate increases to 13.8 billion gallons in 2013. Because oil companies blended 2.6 billion gallons of ethanol with gasoline above what was required in previous years, they have built up blending credits - known as renewable identification numbers, or RINs - allowing them to count those gallons toward blending totals in this or future years.

In the Purdue study, Mr Tyner, along with fellow agricultural economists Chris Hurt and Farzad Taheripour, looked at future corn and ethanol prices with and without an RFS waiver, how RINs and crude oil prices could factor in ethanol use, and what might occur if the drought worsens.

"If corn prices remain high, which seems likely, and crude oil remains at $100 a barrel or lower, then reducing the RFS could reduce the demand for ethanol and, consequently, the demand for corn," Mr Tyner said. "If the waiver resulted in less demand for ethanol that would, in turn, lead to lower corn prices than would have existed without the waiver. It also could lead to more ethanol plant closings - at least temporarily."

Conversely, an EPA waiver could have little effect if crude oil moves beyond $120 a barrel and oil companies continue blending ethanol at current levels, Mr Tyner said.

The severity of drought moving forward adds another layer of complexity to the issue, the Purdue economists said.

At the start of the crop season, US corn production was projected at 14.7 billion bushels at a US farm price of $5.34 per bushel. The USDA now estimates US corn production will reach only 10.8 billion bushels this year, at $8.20 a bushel. Should the drought strengthen and the EPA sticks to the mandated 13.8 billion gallons of ethanol in 2013, a corn crop of 10.5 billion bushels could push corn prices to $8.57 per bushel, according to the Purdue report. If drought conditions abate and corn production reaches 11.5 billion bushels, corn prices could fall to $7.02 a bushel under a full RFS ethanol mandate.

"However, because of carry-forward blending credits from prior years - the RINs - refiners and blenders could decide to produce and blend 2 billion fewer gallons of ethanol," Mr Tyner said. "That change alone could reduce the price of corn around 67 cents a bushel. And that is without any EPA waiver."

The EPA will have much to consider before rendering its waiver decision, Mr Tyner said.

"It will have to determine what impact issuance of a waiver actually would have, given the way the market functions at present," he said. "For technical and economic reasons, refiners may well continue to use nearly the same amount of ethanol even if they are not required to because of a waiver. Technically, they may not want to change their current mix of gasoline and ethanol to make 87-octane gasoline, as an example. Economically, they would not be expected to reduce ethanol use as long as ethanol prices are below gasoline, as they are now. If refiners and blenders don't have or choose not to use operating flexibility, and if reduced use of ethanol is not economical, then a waiver would have no impact.

"To the extent that refiners and blenders do have flexibility with their use of ethanol, a small waiver could reduce corn prices around 47 cents a bushel, while a large waiver could reduce it as much as $1.30 a bushel, depending on economic conditions."

Should a waiver lead to reduced ethanol use, the EPA could have an influence on who bears the brunt of the drought-related corn losses, Mr Tyner said.

"The total amount of harm from the drought is in the tens of billions of dollars," he said. "The EPA cannot change the loss. It can only potentially redistribute it among the affected parties: ethanol producers, livestock producers, corn growers, and domestic and foreign consumers."

The Purdue report is available Wednesday on the Farm Foundation website at http://www.farmfoundation.org/.