Between 2005 and 2009, U.S. taxpayers spent a whopping $17 billion to subsidize corn ethanol blends in gasoline. What did they get in return? A reduction in overall oil consumption equal to an unimpressive 1.1 mile-per-gallon increase in fleet-wide fuel economy. Worse, ethanol’s much ballyhooed contribution to reducing America’s dependence on imported oil looks even smaller – the equivalent to a measly six tenths of a mile per gallon fleet-wide — Environmental Working Group.
That $17 billion is just part of the cost. To accommodate the massive increasing demand for corn by the ethanol industry 30% of the US corn crop is now being used as “food for fuel”.
With record crops recently (thanks to technological advances, good weather and increased CO2) farmers have been able to keep up with the increased demand for corn.
Let’s look closer though. That unprecedented demand base for corn is only being met with increased supply through higher prices.
At the moment, the December corn 2010 contract is trading at $3.78/bushel.
Historically, with a record crop last year and Monday’s USDA rating of the corn in the ground right now at 77% good to excellent, we would be seeing prices under $2.50/bushel. (http://usda.mannlib.cornell.edu/usda/current/CropProg/CropProg-06-14-2010.pdf)
In the past, before ethanol hit the scene, $3.78 corn occurred only because of shortages or expected shortages from droughts or other powerful forces.
Those extremely high prices would do 2 things. 1. Stifle demand, providing a “rationing” of the small supplies and 2. Give incentive for more production/supply. On the rare occasions that prices spiked that high, it would only last a couple of months.
Now we have $3.78 December corn with record supplies from last year and the new crop off to a record good start.
The reason is ethanol. It goes MUCH farther than that though. Since we need 30% more corn now to supply the ethanol plants, that means we need more farmers and more acres growing corn. Those millions of acres required to do this were not just sitting bare before the ethanol scam. The vast majority of those acres were/are on farm land that was growing something.
If some of those acres switch from something else to corn, there are less acres that are growing the something else.
When that happens, we have less acres planted to soybeans, wheat, cotton and other crops.
But those crops also have a solid demand base that can only be met with supplies from farmers growing a big crop on a large number of acres.
What happens is that prices of those commodities will compete with each other to give farmers the financial incentive to grow more of the one that is priced highest. If corn goes from $2.50 to $3.78 for instance, soybeans will not stay at $6 which might be fair value before ethanol. $3.78 corn will catch a lot of farmers attention that would otherwise grow soybeans. To keep farmers interested in growing enough soybeans, the price needs to be $9, otherwise their will be a shortage of soybeans and the price would run up even more. This affects other crops with higher prices too. Good to reward hard working farmers, bad for everyone else not tied to ethanol.
The one thing that has allowed us to dodge the big bullet so far, is that the US growing weather has been great for many years.
The last drought was 1988. This is a record for going without a drought.
We’ve had record crops but are barely managing to generate enough supply. There are some other factors too, like demand coming from China.
Record crops and supplies will not continue forever and there is a disaster coming up because of the false sense of security our thoughtless governmental policies have set us up for.
When the inevitable drought comes, we will not have an extra 30%+ for ethanol.
The effect will be prices going higher than anyone imagined and not just for corn. Ethanol plants already taking billions from our taxes will be even less profitable to operate if the price of corn doubles or goes to $10……unless the price of ethanol also doubles.
For that to happen, the price of gas will need to go much higher too. This and prices of most other commodities will go higher.
Those in the livestock industry that have large expenses to feed their animals will be losing loads of money again like they did when a small sample of this happened 2 years ago……but that was without a drought or short crop.
Other than rewarding the hard working farmers that grow crops, ethanol is benefiting a few and costing everyone.
When we do have that drought and prices go to the moon, the same ones responsible for these horrible, wasteful policies will blame it on global warming and use that to push harder for the insane policy of taxing plant food(CO2).
So we have:
1. A government that wastes massive amounts of food and our money to create almost the same amount of energy used to go into it
2. Is against increased levels of free atmospheric crop/plant fertilizer(CO2) and wants to take more of our money to cut down on it.
3. On top of that, they pay loads of our money each year to farmers to not grow on millions of acres of CRP land.
Being a meteorologist involved in agriculture has given me the proper insight to view the accurate science and realities of these situations. It makes me afraid to think about the other hundreds of policies that I know nothing about but can hardly trust in the hands of some pretty poor decision makers.
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