By Colin Packham
MELBOURNE (Reuters) - The U.S. government is unlikely to bow to pressure for a waiver on quotas requiring a proportion of corn is used to make ethanol before November, at the earliest, traders said, despite the expected slump in global corn production due to severe drought.
And any change in the Renewable Fuels Standard, requiring that over a third of the corn crop is made into fuel ethanol, could cause market chaos after dwindling corn stocks had already been priced in, traders at an Australian grains conference said.
The earliest the mandate might be removed would be after the U.S. elections in November, Peter Nessler, president of commodities trading firm FCStone LLC said.
But the impact of any change would be market volatility.
"They could wave a wand, which they could in theory, and they say it goes away," said Nessler.
"But then you take a shift of literally having no corn and 3 or 4 billion extra bushels of corn, and then you take the prices completely the other way, and that's not fair," he added.
The U.S. corn crop has wilted under unrelenting hot, dry weather across the Midwest, causing the worst crop quality for more than 20 years.
The tightening corn stocks are threatening a global food crisis, exacerbated by fears that Russia will enforce another export ban, while analysts warned U.S. soybeans will be irreversibly damaged if rain does not arrive by August.
The livestock industry has appealed to the Environmental Protection Agency (EPA) to curb or suspend the mandate that requires 9 percent of the U.S. gasoline supply to be made up of ethanol for the coming year.
The implications of the U.S. drought on the global grains market was a hot topic at the conference in Melbourne, with some of those attending expecting the ethanol mandate to be changed, but not in the immediate future.
"If we get $25 beans and $15 corn, there is going to be a huge amount of pressure on the political establishment to get rid of biofuels," Alex Duncan, grain broker at McDonald Pelz Global Commodities, said.
"I don't think it is something that will happen this year. but if the drought continues and prices rise, governments will change the mandate," he added.
December corn is currently trading at about $8.10 a bushel, while soybeans are at about $16.56 a bushel.
Corn and wheat prices have risen about 50 percent in the last six weeks and soybeans by around 20 percent as U.S. crops got scorched by heat and drought.
The chief executive of global grains trading powerhouse Cargill lent his voice on Tuesday to a growing chorus of corn consumers urging the U.S. government to temporarily curb its ethanol quotas, saying that the expected drop in global corn production was "manageable" with the right response.
CEO Gregory Page said on CNBC that the U.S. biofuel mandate "needs to be addressed" through existing policy tools, becoming the highest-profile executive to call for some relief from the Renewable Fuels Standard that requires that over a third of the corn crop is made into fuel ethanol.
The U.S. Department of Agriculture said the corn crop quality shrunk another 2.5 percent over the past week to the worst levels since 1988.
(Editing by Ed Davies)