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How Ethanol Inflates Food Prices:

Food in the United States is relatively cheap -- but it could be even cheaper. There are a wide range of federal policies that increase the price of various foods. Federal marketing orders for various agricultural products increase prices for milk various fruits. Restrictions on sugar imports dramatically increase the price of sugar, and therefore increase the demand for sugar beets and corn syrup. And so on.

The Washington Post reports, the federal government's love affair with corn-based ethanol is further increasing a wide range of food prices.

The nation's unquenchable thirst for gasoline -- and finding an alternative to what's been called our addiction to oil -- has produced an unintended consequence: The cost of the foods that fuel our bodies has jumped.

Beef prices are up. So are the costs of milk, cereal, eggs, chicken and pork.

And corn is getting the blame. President Bush's call for the nation to cure its addiction to oil stoked a growing demand for ethanol, which is mostly made from corn. Greater demand for corn has inflated prices from a historically stable $2 per bushel to about $4.

That means cattle ranchers have to pay more for animal feed that contains corn. Those costs are reflected in cattle prices, which have gone from about $82.50 per 100 pounds a year ago to $91.15 today.

The corn price increases flow like gravy down the food chain, to grocery stores and menus. The cost of rounded cubed steak at local Harris Teeters is up from $4.59 last year to $5.29 this year, according to TheGroceryGame.com, which tracks prices. The Palm restaurant chain recently raised prices as much as $2 for a New York strip. And so on.

"Anybody that knows anything about the marketing of corn knows that when you raise the price of corn you are going to create problems in all of the markets that use corn," said Ronald W. Cotterill, director of the Food Marketing Policy Center at the University of Connecticut.

There are significant negative environmental consequences of the artificially increased demand for corn-based ethanol as well, some of which have yet to receive much attention. For instance, as corn prices rise in response to the incrased demand for corn, farmers are becoming less willing to let fields lie fallow or enroll their lands in various conservation programs. Higher corn prices mean that the opportunity costs of such choices are higher than they were before. In parts of the country, this could have a significant negative effect on wildlife habitat, particularly for migratory birds. So, even if one makes the (dubious) assumption that there are significant environmental benefits from switching to corn-based ethanol, such as a potential reduction in certain emissions, there are significant environmental costs as well.

AltFuel Fan (mail) (www):
The recently published results of a study that looked at the cost of corn and prices at the grocery store determined that oil was more responsible for recent price hikes. Take this with a grain of salt, as you may know, numbers can be manipulated to show pretty much whatever you want. Granted, there are strong items that point to the higher price of corn. Just don't overlook that fossil fuels are very high in price right now and nearly everything is transported via a machine powered by fossil fuel. http://ethanolhoax.wordpress.com
6.16.2007 9:43pm
therut:
What are you guys thinking. It is GLOBAL WARMING. Get on the bandwagon.
6.16.2007 9:49pm
jimbino (mail):
Brazil has enough ethanol potential to fill our tanks and save our domestic corn sugar for making Michelob and Coca Cola. Do y'all realize that Brazilian Coke tastes better because it's made with cane sugar, instead of the corn syrup used in the USSA?
6.16.2007 10:00pm
Nathan_M (mail):
I am shocked that a program involving energy and agricultural policy is not in the best interests of consumers. Shocked, I tell you.
6.16.2007 10:02pm
Fury:
All I know is that we were paying ~$280/ton for sweet feed in October of 2006. In late May, we were paying ~$360/ton for the same feed. That's the largest increase we've seen in such a short period of time - at least in the ~15 plus years we've been buying this brand of feed.
6.16.2007 10:22pm
ChrisO (mail):
Yeah, I for once have trouble buying enough sugar to maintain a healthy body weight.
6.16.2007 10:25pm
ChrisIowa (mail):
I travel Iowa a lot, I see a lot of fields being cleaned up along the edges, and a very few lots of scrub brush being cleaned up. The conservation land is tied up in multi-year agreements that are not yet expiring. I do not see anything that I can identify as conservation ground being converted. Most of what I see being converted is not habitat for migratory birds, but rather for native birds such as pheasants.

The connection between corn and meat prices is indirect, since meat producers do not have pricing power. They have an auction market for the feed they buy and an auction market for the animals they sell. If they could increase prices why did they not do it a few years ago, when they were losing money? Anyone notice a change in the quantity of meat on the market?

In either case, the farm program will cost less this year, since they don't kick in unless prices are below a threshold.
6.16.2007 10:51pm
whit:
i trade a fair amount of agricultural futures contracts (mostly corn and soy) and the corn futures market has been insane lately. futures markets are used to hedge and to speculate, and clearly there is a lot of institutional action and upwards price pressure being reflected daily.

generally speaking, the best cure for low prices is... low prices. however, when it comes to bull markets - NOBODY knows where the top will be. beans in the teens? who knows?
6.16.2007 11:00pm
Daniel Chapman (mail):
So corn subsidies created artificially high supply, which drove down the price of corn products, and now ethanol requirements are creating additional demand to drive the price up...

my head hurts.
6.16.2007 11:44pm
Alan K. Henderson (mail) (www):
At least one UN official is voicing concerns about biofuels contributing to food scarcity and food price inflation:
GENEVA (Reuters) - Diverting sugar and maize for biofuels could lead to hundreds of thousands of deaths from hunger worldwide, the United Nations' food envoy warned on Thursday.

Jean Ziegler, U.N. special rapporteur on the right to food, accused the European Union (EU), Japan and the United States of "total hypocrisy" for promoting biofuels to cut their own dependency on imported oil.

...

Ziegler said that more and more sugar cane plantations in northern and eastern Brazil were being used for biofuels, leaving less land for subsistence farmers.

Brazil is the world's biggest producer of cane-based fuel ethanol, most of which is destined for the domestic market to meet rapidly growing demand from flex-fuel motorists.

In some regions of Mexico, the price of maize rose by 16 percent last year, because of rising demand for use in biofuels, according to the independent U.N. envoy.
6.17.2007 12:27am
mr. meade (mail):
It's the speculators that are driving up the prices, while the producers of corn (not necessarily the farmers, but the processor factory owners: big agricultural industry) are gladly going along with a facade that suggests that high prices are on the way and ethanol has huge potential. In other words, the price of corn is getting manipulated by those who can do so, to the short-term disadvantage of the everyday joe farmer. We get a bit of a price hike at the grocery store, but that's mostly fuel costs (and a dearth of Mexican labor?)

This will cool off as we all realize that gas prices aren't going to change much no matter our ethanol production and the reality hits that the government won't throw much money at this "problem".
6.17.2007 12:49am
Curt Fischer:
What Nathan_M said.

Agricultural subsidies severely distort the corn market and have for many years. Numbers I have heard for the cost of production for corn are in the neighborhood of ~$3 per bushel. So the historic corn price in the US for the last twenty years or so, of ~$2 per bushel, were only sustainable because of subsidies paid to corn farmers. Now, corn farmers are enjoying the huge increase in demand for their product largely because of the push for domestic corn ethanol production. Prices of $4.50 per bushel and higher means that corn agriculture is profitable without subsidies! Yay for market-driven economics.

But wait! A large reason why corn ethanol (and thus corn) is in such high demand is the $0.51 tax credit paid to blenders for each gallon of ethanol they put into the nation's fuel supply. This government gravy train artificially inflates the price of corn ethanol and thus of corn. So, the drive for domestic corn ethanol production from corn is in large part a push for a new form subsidizing corn agriculture. Domestic ethanol production by 2009 or so is projected to be in excess of 10 billion gallons per year, meaning that the government will be paying $20 billion in corn ethanol subsidies.

Biofuels derived from cellulosic biomass (for example, ethanol derived from agricultural residues like the stem, leaves, and stalks of corn plants or wood chips) has the potential to deliver a renewable, domestic source of fuel without impacting food supply. The environmental benefits of this technology are likely to be much greater than for corn ethanol. I would argue that developing cellulosics and other advanced biofuels technologies would be a much better use for the $20 billion than paying money to ethanol blenders. (But because I am a chemnical engineer researching technologies for the production of alternate biofuels, I suppose I am biased.)

The environmental benefits of corn ethanol production are marginal, as Prof. Adler suggested. Producing a BTU of energy in the form of corn ethanol requires nearly a BTU of fossil fuel energy as input into various stages of the production process. So ethanol use doesn't save much energy relative to gasoline use. But, the fossil fuel energy inputs for ethanol are largely natural gas or coal, which can largely be obtained domestically, in contrast to the crude oil needed for gasoline production. Perhaps this is another reason the government likes subsidizing this industry. "Energy security." Who doesn't love that?

But wait (again)! Energy security interests could be very well served simply by eliminating import restrictions and tariffs on sugar and ethanol. That way we could just buy ethanol and sugar from the Brazilians, who produce it from sugar cane, at a much lower cost and much lower fossil energy input.

Also, keep in mind that despite all the hype that ethanol is currently enjoying, it is used mainly in very low level blends. That is, it isn't really being used as a fuel but as a gasoline additive. Switching to higher-level blends like E85 (85% ethanol) will require massive investments in infrastructure, such as ethanol pipelines, ethanol filling stations, and increased production of flex-fuel vehicles. And, despite all the subsidies for corn ethanol, the little E85 that is available in the US today is sold at prices per BTU much higher than gasoline.

The bottom line is, ethanol is not a bad fuel per se, but producing it from corn is inefficient, and technologies could be developed that produce fuels even better than ethanol anyway.

Sorry for such a long post. I got excited.
6.17.2007 12:51am
whit:
with all respect, i think mr meade misunderstands how futures markets work. the spec's make up part of the market, but commercials (producers and consumers) are a much higher %age of trade volume. just check the COT reports (commitment of traders) to see the difference.

all claims of "manipulation" aside, there is only one thing that moves price - when demand exceeds supply at a level, price moves up to a level where supply exceeds demand, at which point it declines. this happens with all asset classes, in all time frames.

specs make money by positioning to take advantage of price moves, but HEDGERS do not. hedgers offset physicals or future demand for physicals by HEDGING. iow, a commercial producer who has 500k bushels to go to market in 6 months will short the futures market. contrarily, a commercial consumer (like coke that needs to buy tons of corn syrup at periodic intervals) will go long the market to hedge.

look at the latest COT report for 6/12

commercials hold 46.6% of long position s, non-commercials hold 28.2% and non-reportables (very small traders like me :) ) hold 13%

as for short positions...
commercials hold 62% of shorts, non-commercials 8.2% and nonreportable 17.5%

this is actually pretty typical, fwiw.
6.17.2007 1:35am
ChrisIowa (mail):
From Mr. Fisher:

But wait! A large reason why corn ethanol (and thus corn) is in such high demand is the $0.51 tax credit paid to blenders for each gallon of ethanol they put into the nation's fuel supply.


A bigger reason now is that congress mandated an oxidant in gasoline, and the only real choice for that is ethanol. If the $0.51 subsidy were done away with, that would take care of the assertion that as much energy goes into ethanol's production as it produces, as market prices would take care of the imbalance. The energy that goes into ethanol would be reflected in the price.

Energy content is not the only factor in the use of ethanol. Air quality of the exhaust is another consideration.

When I first got my current car, a '99 Taurus with a U as the 8th digit of the VIN (an indication of the engine) I did a test to determine the premium that gasoline would be worth over gasoline with ethanol. Approximately the first 2,000 miles I ran the car with ethanol. The next 1000 miles with plain gasoline. I intended to run 2000 miles each way, but the intermediate results indicated that the car got better mileage with ethanol, so it was not worth any premium to buy gasoline without ethanol. Mileage with 10% ethanol 25.5 mpg; without ethanol 24.5 mpg. About 90% of those miles were with the car set on cruise at 75 mph.

There are concerns with using corn stover. For instance, picking up all that stuff leaves the ground bare in the off season, and more vulnerable to erosion. The loss of organic material in the soil from using the full plant would also eventually deplete the moisture retention capacity of the soil.

Would the use of stover result in a loss of CO2 in the soil or do plants absorb as much as they need from the air? I don't know enough about plant physiology to know. If so, we would have to replenish the CO2 in the soil. Urban garbage, say newspapers or landscape waste would be an environmentally better source of feed stock than stover.
6.17.2007 2:03am
ChrisIowa (mail):
In the early 1990's 10% ethanol was hitting it's stride in the market in Iowa but there were a few holdouts. There was in one town a gas station with a sign that said "No alcohol in our gas". Across the street was a Liquor store that said "No gas in our alcohol".
6.17.2007 2:04am
Andrew Okun:
Corn-based ethanol is not a product of environmental politics, it is a product of corn politics. Specifically, it is a product of the atrocious and undemocratic equal Senate franchise. As long as corn farmers have that many senators, we are going to be buying and either eating or burning their corn products whether we like it or not. The alternative is coming up with something else they can produce which the rest of us can be forced to buy and consume that is more useful. Cellulosic ethanol maybe? Don't know the details, but I gather it is potentially much more efficient as a grown liquid fuel.

With regard to more expensive food, I'm not sure it's a terrible problem if corn products get more expensive. Poor Americans are not short of calories, which thanks to corn are cheaper than dirt, and will be so even after a substantial rise. They are short of high quality foods, like fish, fruits and vegetables, which are more expensive and which the corn business displaces by providing the dirt cheap calories.
6.17.2007 2:10am
Elliot123 (mail):
Those farm state senators who pushed ethanol are only now beginning to hear from the other agrictltural sectors who are getting squeezed by higher corn prices. I suspect the days of unrestrained support for corn are coming to a close as competing interests start howling.
6.17.2007 2:23am
A. Zarkov (mail):

Ethanol—Bio-fuels or bio-fools?


"In Mexico, the price of tortillas has doubled over the past year as the ethanol boom has bid up the cost of this commodity. The country's poorest citizens have taken to the streets to protest the increases. Here's an ethical question: in a world where people starve, does it make sense to run cars on food?"
6.17.2007 4:31am
A. Zarkov (mail):
Corn ethanol unprofitable by 2008, says Iowa State


"We think the expected returns to an ethanol plant are zero or negative in 2008," said Bruce Babcock, economist and director of the Center for Agricultural and Rural Development at Iowa State, in Ames, Iowa.



Study: U.S. near corn-based ethanol tipping point


"The Center for Agricultural and Rural Development at ISU has published a new paper that finds that U.S. retail food prices already have increased $14 billion annually. They could climb $20 billion annually if crude oil prices reach $65 to $70 per barrel and U.S. corn prices reach $4.42 per bushel, compared to $2 per bushel in mid-August 2006, the study said."



Ethanol as a problem instead of a practical solution.


The idea of using ethanol as a fuel to replace gasoline has serious drawbacks that should be honestly and faily examined. On a technical side, ethanol has only about 2/3 the energy value of gasoline so that it decreases the mpg of cars, i.e., you get lower milage so must pay for more fuel. Small boat engines have reliability problems when working with a 10% mixture. There has also been a greater number of motor replacements with vehicles using a 10% mixture.
6.17.2007 4:51am
Queen of Suburbia (mail) (www):
In Europe we must have plenty of spare capacity, hell we pay French farmers NOT to produce under the common agricultural policy!
6.17.2007 5:30am
Arkansas Andrew (mail):
Much of this commodity price explosion is centered around ethanol and corn. Soybeans and soyoil is the quiet sister that really make sense in the alt. fuels market.
Now when it comes to prices for commodities: As a farmer I welcome a major bump in the prices that I receive for the products I produce. That $2 per bushel price for corn that was quoted is the same price that we have received since 1970. That's 37 years. My health care premiums, wages paid, electricity, diesel, equipment, etc. has gone up 300% during that time, but nobody has cried for me.
Is this a government inspired market?__ Maybe. But the fact remains that if oil goes below $50 per barrel, the $.51 subsidy for ethanol and the $1.00 subsidy for soybean oil will not help make a difference in its competitiveness against gas and diesel.
As a nation we are the most obese people on the planet. Our food prices are the lowest of any nation on a per capita basis. Market forces are always at work here, and as the bumper sticker says, "don't bitch about food prices with your mouth full".
6.17.2007 9:12am
David Maquera (mail) (www):
We can afford an increase in food prices if it means becoming much less dependent on Mideast Oil. The tradeoff is worth achieving such a goal.

I do agree with Curt Fischer's promotion of cellulosic biomass as an alternative fuel source. I suspect that at the end of the day, we are going to have to rely on a broad arsenal of alternative fuel sources including, but not limited to, corn, cellulosic biomass, nuclear energy, hydrogen, oil synthetics, etc., to become independent of Mideast Oil.
6.17.2007 9:50am
Curt Fischer:
Arkansas Andrew says:


Much of this commodity price explosion is centered around ethanol and corn. Soybeans and soyoil is the quiet sister that really make sense in the alt. fuels market.


As you noted, biodiesel derived from virgin soybean oil receives a $1.00 subsidy per gallon, or $12 per BTU. Ethanol's $0.51 subsidy amounts to $9 per BTU. Even with the much higher subsidy, much lower capital requirements for biodiesel production, and compatibility of biodiesel with existing infrastructure, biodiesel cost for 2006 was about $2.50 per gallon. Gasoline cost the same year, on average, was about $1.82. I agree that biodiesel would make considerable environmental sense if only feedstocks (e.g. soy oil) could be obtained at higher per-hectare yields and at lower cost. To me, right now the economics just aren't there.
6.17.2007 10:03am
mr. meade (mail):
Whit,

I know I might not know a hedge from a spec from a hedgehog wearing spectacles, but I do know that once an industry gets the label from the government and the public as An Important Industry of the Future, the idiots start to invest. And they mess things up: inflate prices, inflate growth expectations, inflate profit hopes for investors, etc. The streets are paved with stock options, and all that garbage.

It's not a conspiracy if everyone's just suffering from wishful thinking, but it acts just like one.
6.17.2007 10:18am
JeffB (mail):
The article mentions the cost of eggs may go up, and the United Egg Association is fighting ethanol.

Mr. Adler mentions the negative consequences on the habitat of wild migratory birds.

My first thought was the domestic egg-laying birds, whose habitat has been reduced wire-cages.
6.17.2007 11:20am
Daniel Chapman (mail):
I mean this in a joking, and not snarkish sense, Arkansas Andrew: Willie Nelson cries for you!
6.17.2007 11:54am
Jonathan H. Adler (mail) (www):
Mr. Okun --

I think you underestimate the role of environmental politics in ethanol mandates. Were it not for the environmental push for alternative fuels in the 1990 Clean Air Act Amendments, there never would have been fuel oxygenate requirements -- requirements that were designed to mandate a market for ethanol.

I detailed this history in a book chapter, "Clean Fuels, Dirty Air," in Environmental Politics: Public Costs, Private Rewards (Greve &Smith eds., 1992). A shorter version of the story, along with other examples of green-coated rent-seeking, can be found in my article "Rent Seeking Behind the Green Curtain."

JHA
6.17.2007 12:34pm
VincentPaul (mail):
Back in the summer of '78 (when I was erecting grain bins) corn was at about $1.58 a bushel.
6.17.2007 1:48pm
Elliot123 (mail):
mr. Meade,

Let's not forget those investing idiots gave us life saving drugs, the computers we use to post here, the internet, a safe food supply, electricity, cell phones, and MRI machines. Those were all considered industries of the future. The idiots also took losses when other investments didn't work. Without the idiots we would all be far less comfortable in life.

Let those who do not take advantage of the above be the first to criticize those advances.

Can someone tell us what the price of corn should be? That's why we have markets.
6.17.2007 2:07pm
ChrisIowa (mail):
Returning to the original article, consumer prices going up because of the price of corn is an excuse, not a reality. Because the price of the commodity is such a small part of the cost of the end good. If someone raised the price of a steak $2 it was not justified on the basis of the cost of the meat, the cost of the corn as feed was just an excuse.

Corn prices increased from $2 per bushel to $4 only in the past year. Cattle and hog prices, however, are at levels that are the same as what they were 3 years ago when the price of corn was around $2. Beef has been within a $20/ hundredweight range for the past 3 years. A $20 per/hundred fluctuation ($0.2 per pound) translates to about a $0.40 per pound fluctuation in the price of beef at the supermarket or restaurant. Out of what you paid the restaurant, the cattle producer got in the range of $1.50 to $2.00 per pound, or about $1 for that 8 0z sirloin. And he's the guy that paid for the corn well before he sold the beef.

Corn and cattle have different supply-demand curves that are not related. Production of cattle is in some sense a long term arbitrage between two supply demand curves, the individual producer is not able to affect either supply demand situation. The decisions that result in todays supply of beef were made three years ago, when corn was $2. That cattle is reaching the market, it can be delayed or accelerated, but only on the scale of months, not years. There are substitutes for corn in the early life of a critter, but as it gets finished for market there is no substitute for corn. Increasing feed prices will tend to accelerate, not delay the introduction of that meat to the market, increasing the supply and lowering price. As feed cost goes up, so does the cost of maintaining an animal, and the efficiency of conversion of feed-to-meat goes down as an animal gets older. A cattleman wanting to shed cost will sell sooner rather than later, dragging down the price of beef rather than increasing it. The cost of corn at $4 will not be reflected in the supply of beef until 3 years from now, and that will be only because cattle feeders decide to grow fewer cattle at the new price or leave the business perhaps shifting to corn production, thereby reducing beef supply.

The cost of corn and other grains in the consumer products you buy is even a smaller proportion than it is in the example above for beef of the price you pay at the consumer level.
6.17.2007 2:14pm
Harry Eagar (mail):
Back in '78, when VincentPaul was erecting bins and corn was $1.58, if an Iowa farmer got 100/bu/ac, he'd have his picture on the front page of the county seat paper.

10 years later, any farmer who didn't average 100 bu was out of business. Today, the average is creeping up on 200.

In order to compel drivers to consume gasohol, Iowa gave up its road tax (a nickel a gallon, as I recall). The amount of tax per gallon being waived is now 2.8 cents.

I asked the Iowa Department of Revenue how much money had been taken out of the road repair fund (which is what the road tax was used for) since 1985. Their answer: 'That's a good question.'

The value of the corn in a $3 box of corn flakes is about a nickel.

Among the other subsidy costs of corn is the federal purchase of those grain bins to hold the unneeded corn.

During the '70s and '80s, when I lived in Iowa, the nation's annual production was 10 billion bu and annual consumption was 9 billion.

I always thought it would have been better to have built them in Russia or India or places where half the crop is eaten by vermin.
6.17.2007 2:55pm
whit:
"I know I might not know a hedge from a spec from a hedgehog wearing spectacles, but I do know that once an industry gets the label from the government and the public as An Important Industry of the Future, the idiots start to invest. And they mess things up: inflate prices, inflate growth expectations, inflate profit hopes for investors, etc. The streets are paved with stock options, and all that garbage. "

and mr meade, as i explained to you, using ACTUAL #'s (not merely unsupported assertions), the #'s do not bear out your thesis.

the big players (the vast majority of outstanding contracts) in ag futures are the commercials NOT the small spec's. i *am* a small spec, but i do not move the market. the commercials do. this is similar to index futures, where over 90% of trade volume is conducted by less than 9% of market participants.

you can keep making unfounded assertions, or you can look at the actual #'s and reasses your theory. that's what people should do. look at the data, THEN draw conclusions.

these are some of the most liquid markets on earth, and that's what's up.

here. i'll even give you a nice pretty chart to look at ...

http://www.futures.tradingcharts.com/cotcharts/C

the gray area is the small spec's. sorry, but they are not moving the market. that's simple math.

corn has ramped up markedly. it is not small specs that are responsible.
6.17.2007 4:16pm
whit:
"Much of this commodity price explosion is centered around ethanol and corn. Soybeans and soyoil is the quiet sister that really make sense in the alt. fuels market. "


here's a monthly chart of soybeans
http://www.futures.tradingcharts.com/chart/SB/M

soy had a low in 2005 of under $5

it is currently over $8.

that's a 60% increase in a little over 2 years.

that's a pretty phenomenal bull market. to call it a quiet sister and saying it's just ethanol and corn is simply not true.

corn has had a greater %age rise. that much is true. the low for corn over the same period was approximately $2 and it is not just under 4. so, we're looking at almost a 100% increase

any investor who doesn't have commodity exposure is missing out imo. plenty of ways to get involved w/o going the futures route (which is not appropriate for most casual investors imo) ...
\
6.17.2007 4:24pm
Charlie (Colorado) (mail):
You mean government interventions in markets have unintended side effects? And adding new markets for a product without expanding production can raise prices?

Gee. Who'd'a thunk it?

And to think, the corn surplus was the big crisis not too long ago.
6.17.2007 4:26pm
whit:
corn surplus = low prices.

the best cure for low prices (in commodities) is ...

wait for it...

LOW PRICES.

commodities 101.

see: coffee, orange juice, soy, corn, etc.
6.17.2007 4:52pm
TJIT (mail):
Allow me to translate some of what ChrisIowa wrote. Because it provides a pretty good example of just how self centered and economically ignorant subsidy suckers can be.
Corn and cattle have different supply-demand curves that are not related. Production of cattle is in some sense a long term arbitrage between two supply demand curves, the individual producer is not able to affect either supply demand situation.
Cattle producers can't do anything about the price of corn they just have to deal with it.
There are substitutes for corn in the early life of a critter, but as it gets finished for market there is no substitute for corn. Increasing feed prices will tend to accelerate, not delay the introduction of that meat to the market, increasing the supply and lowering price.
The cattle producer is going to get lower prices thanks to the government boondoggle known as ethanol. But the corn growers got theirs so tough luck for everybody else.
As feed cost goes up, so does the cost of maintaining an animal, and the efficiency of conversion of feed-to-meat goes down as an animal gets older. A cattleman wanting to shed cost will sell sooner rather than later, dragging down the price of beef rather than increasing it.
Cattle producers will face lower costs leading to economically forced liqudiation of cow herds. But the corn growers got theirs so tough luck for everybody else.
6.17.2007 5:19pm
TJIT (mail):
More ChrisIowa nonsense

The cost of corn at $4 will not be reflected in the supply of beef until 3 years from now
Complete and utter bull excrement. I suggest ChrisIowa watch feeder cattle futures for a while. He will see the prices paid to ranchers rapidly drop every time corn prices go up. But the corn growers got theirs so tough luck for everybody else.
and that will be only because cattle feeders decide to grow fewer cattle at the new price or leave the business perhaps shifting to corn production, thereby reducing beef supply.
ChrisIowa is so focused on corn and Iowa that he apparently does not realize that there are big parts of the US that can't raise corn. Ranchers will have to respond to this by taking lower prices or by leaving the business completely.

Ethanol is a massive expense for US taxpayers and drivers. It is bad for the environment, bad for the taxpayer, and bad for the car driver. But the corn growers got theirs so tough luck for everybody else.
6.17.2007 5:23pm
ATRGeek:
I agree that big-picture-wise, it makes little sense to use food crops to make fuel. In the short run, though, they may help bridge the gap to the extent they do not rely as much on foreign sources.

It does seem to me, though, the way to figure out where to place our alternative fuel bets is not for the government to provide subsidies for alternative fuels. Rather, the government should slap higher taxes on petroleum-based fuels (call it the "National Security Tax"), and then let the markets figure out the most economical way around those taxes.
6.17.2007 5:40pm
TJIT (mail):
Biofuels are an environmentally destructive boondoggle. The only thing they do successfully is take money from the taxpayers and give it to corn farmers and ADM.

What about the land?

The hype over biofuels in the U.S. and Europe has had wide-ranging effects perhaps not envisioned by the environmental advocates who promote their use. Throughout tropical countries like Indonesia, Malaysia, Brazil, and Colombia, rainforests and grasslands are being cleared for soybean and oil-palm plantations to make biodiesel, a product that is then marketed halfway across the world as a "green" fuel.
6.17.2007 6:40pm
TJIT (mail):
ATRGeek, said
In the short run, though, they may help bridge the gap to the extent they do not rely as much on foreign sources.
The problem with biofuels in the US is that they are an energy sink. It takes more petroleum energy to produce biofuels then the biofuels produce when they are burned. Furthermore, the volume of ethanol is not sufficient to have any impact on our petroleum consumption.

The site below is a good source for technical information on ethanol, biofuels, and petroleum refining

R-Squared Energy Blog
6.17.2007 7:03pm
ATRGeek:
I think TJIT is leaping to a conclusion about biofuels in general from some problems with specific biofuels.

That said, there is definitely a looming tradeoff between environmental goals and national security goals (and in fact between different environmental goals). An even better example is coal-to-liquid fuels ("CTL"). As I understand it, CTL becomes economically competitive at around $40/barrel for oil, and of course the US has huge coal reserves. The problem is that CTL is worse from a carbon emission standpoint than petroleum.
6.17.2007 7:10pm
ATRGeek:
TJIT,

You claim: "It takes more petroleum energy to produce biofuels then the biofuels produce when they are burned."

Please provide a direct source for this statement. To my knowledge, that is not true of all biofuels. Note that the need for energy input (which all renewable sources require), or even carbon-based energy input (which some biofuels may currently require), is not the same thing as petroleum-based energy input.
6.17.2007 7:14pm
ATRGeek:
After a quick google search, here is a claim citing a USDA/DOE study that with respect to biodiesel from soybeans, it takes one energy unit of fossil fuel (which again need not all be petroleum) to make 3.2 energy units of biodiesel:

http://www.renewableenergyaccess.com/rea/news/story?id=34304
6.17.2007 7:20pm
TJIT (mail):
A couple of more links to demonstrate what a stinking pile of bull excrement US ethanol policy is.

The Myth of ethanol
So, the next time someone tells you that ethanol production is going to reduce our fossil fuel usage, tell them that in the last 7 years annual ethanol production grew by 3 billion gallons, while annual gasoline demand grew by 14 billion gallons. This, despite steadily rising oil prices and record high gasoline prices.

Ethanol boondoggle
"I'm not posturing. I have no agenda," Carper said in a Tuesday interview in his office. "I see trouble looming here in the American heartland and a lot of good, well-intentioned people facing some terrible and ruinous losses."

"For what constructive purpose are we disrupting agriculture in this manner?" he asked. "For what constructive purpose have we embarked on this dangerous public policy initiative?"
But you get bonuses: Like depleted water tables, increased pesticide and herbicide runoff (responsible for a large dead zone in the Gulf of Mexico), increased soil erosion (wait til we have a drought -- Can you say "Dust Bowl"?), and the kicker: Higher food prices for everyone and reduced corn exports. (Hope nobody needs extra corn this year). All of this to displace 0.46% of our gasoline consumption and line the pockets of some farmers, ethanol producers, and ag conglomerates! And that's presuming you could burn animal feed in your car
6.17.2007 7:24pm
ATRGeek:
Again, a little more googling:

Biofuel Energy Balances
6.17.2007 7:26pm
ATRGeek:
TJIT,

You really need to be more precise in your terminology. In particular, "biofuel" is not synomous with "corn-based ethanol".
6.17.2007 7:30pm
ATRGeek:
That was supposed to be "synonymous" of course.
6.17.2007 7:31pm
TJIT (mail):
ATRGeek,

This guy thinks biodiesel has potential.

Biodiesel: King of Alternative Fuels

If it is workable in an engineering and environmental sense it should not need subsidies.
6.17.2007 7:34pm
ATRGeek:
TJIT,

Define "subsidy".

For example, are the heavy costs to the federal government of securing our supplies of oil in the Middle East a "subsidy" for petroleum-based fuels?

I'd say yes, which is precisely why I favor slapping a high "National Security Tax" on petroleum-based fuels, and then letting the markets sort out what alternatives to use.

Of course, the environmental stuff is tricky too: it is notoriously difficult to monetize the benefits of "clean" technology, and in that sense "dirty" technologies are getting a hidden subsidy for their environmental costs as well. So, something like a carbon tax might be a good idea too, again to eliminate this hidden subsidy.

So to that extent, I agree that our energy policy should start by minimizing subsidies.

Finally, the source you linked noted that it might be worthwhile for the DOE to give basic research subsidies to algae-based biodiesel, and I heartily agree (that is a technology which could fundamentally change all the equations). Again, there are times when the market fails to properly incentivize basic research of this kind, and this could be one of those times (ironically, precisely because it could be so transformative, it could be hard for any of the existing energy players to capture the return).
6.17.2007 7:49pm
Thales (mail) (www):
There's a great article in the current or just past Foreign Affairs entitled How Biofuels Could Starve the Poor. The authors advocate ending our idiotic subsidies of corn, and point out that the more efficient thing to do would be end the foreign sugar tariff/domestic subsidy and buy Brazilian cane based ethanol. Or try cellulosic ethanol alternatives (currently not there yet). But further substitution to corn in U.S. agriculture is just insane, environmentally destructive (less rotation, topsoil erosion-remember the dust bowl?), and unlikely to produce net energy independence or environmental benefits. Our societal relationship with corn is fascinating and deeply diseased in other ways too--read the Omnivore's Dilemma by Michael Pollan for a thorough look at the industrial corn food chain--it's literally in almost everything you put in your body--we are walking talking corn.
6.17.2007 8:18pm
TJIT (mail):
ATRGeek in block quotes or bold

Define "subsidy". Giving government money to politically favored groups or activities, usually associated with some sort of rent seeking activity or regulatory capture.
For example, are the heavy costs to the federal government of securing our supplies of oil in the Middle East a "subsidy" for petroleum-based fuels?
I don't believe the military would be any smaller if there was no oil in the Middle East.

For example after the soviet union collaped the size of the US military was significantly reduced even though conditions had not changed in the Middle East. That is pretty good evidence that size of US military is not driven by middle eastern oil.

But for arguments sake lets assume that not having oil in the middle east would allow for a smaller military. In that case the larger military required to keep oil flowing would be a subsidy. However, it would not be a subsidy to petroleum based fuels it would be:

1. A peace subsidy because it allows oil to flow to Europe without Europe having to create a world class military and navy to make sure the Middle Eastern oil was available to them.

The first half of the twentieth century clearly showed that heavily armed Europe with competent militaries is a very, very, dangerous thing.

2. A social welfare subsidy to the European nations. It allowed Europe to spend money on social programs (universal health care, etc) that they would not have had if they had to pay for a military capable of keeping Middle Eastern oil flowing.
6.18.2007 1:40am
TJIT (mail):
ATRGeek in block quotes
Of course, the environmental stuff is tricky too: it is notoriously difficult to monetize the benefits of "clean"
technology, and in that sense "dirty" technologies are getting a hidden subsidy for their environmental costs
as well. So, something like a carbon tax might be a good idea too, again to eliminate this hidden subsidy.
I don't think such a hidden subsidy exists, especially when you factor in the enormous improvements in quality of life, standard of living, and overall wellbeing petroleum energy has provided. If the impact of petroleum is to be fairly evaluated one must look at the many, many benefits petroleum provides to humanity.

Furthermore, the fact that the "clean technolgy" the government is supporting consists primarily of:

1. Environmentally destructive and ineffective programs like ethanol

2. Potentially environmentally destructive, definitely view shed wrecking, and ineffective programs like windpower.

Shows that the vaunted "clean" technology so many people talk about is not very environmentally friendly.
6.18.2007 1:50am
TJIT (mail):
ATRGeek in block quotes
Finally, the source you linked noted that it might be worthwhile for the DOE to give basic research subsidies to algae-based biodiesel, and I heartily agree... Again, there are times when the market fails to properly incentivize basic research of this kind, and this could be one of those times (ironically, precisely because it could be so transformative, it could be hard for any of the existing energy players to capture the return).
The oil business is tough and Exxonmobil's middling returns (about 10% ROI) at a time of record high commodity prices shows this.

If algal biodiesel was workable I suspect the oil companies would be in the middle of it. It would provide them many advantages:

1. A politically stable investment environment
2. End of having to deal with countries like Venezuela, Russia, peru, etc expropriating their assets
3. Much more controllable risk profile (no more dry holes or geologic risk)

The fact that companies like Shell are heavily investing in oil shale and heavy oil research and not biodiesel shows that algal biodiesel has some issues.

When and if algal biodiesel does work I give at least 80% odds it will work, at least in part, because of technology developed by the oil companies.

Lets hope they can make it work.
6.18.2007 2:13am
TJIT (mail):
ATRGeek,

Thanks for the interesting discussion.

Cheers,

TJIT
6.18.2007 2:14am
whit:
"Let's not forget those investing idiots gave us life saving drugs, the computers we use to post here, the internet, a safe food supply, electricity, cell phones, and MRI machines. Those were all considered industries of the future. The idiots also took losses when other investments didn't work. Without the idiots we would all be far less comfortable in life"

spot on elliot. exactly. the markets allow consumers and producers to hedge (we are speaking the commidities here vs. equities) and also allow the transference of risk. all of these are good things. OF course we can have manias, etc. but the idea that the small spec is moving the corn market is simply not supported by (wait for it...) evidence, despite meade's claims.

there is no more democratic and "fair" institution imo on the face of the earth than an electronic futures or stock exchange with an open book (thus, NYSE and AMEX specialist systems are not included but nasdaq and ECBOT are).

what is the "fair price" for corn? EXACTLY what the market says it is. if there is more demand than supply, the price will go down. the market says "price is unfair" and vice versa. it's actually a very beautiful, if chaotic process.
6.18.2007 2:57am
gutterboy (mail):
Hmmm... maybe we should think in terms of energy units. Fuel, along with soil and sun, is used to grow corn. This is either with distributing water, harvesting with ... um ... harvesters, farmers pickemup truck, his food etc. Energy is a portion of the cost to grow corn. In a sense there is oil in corn.

Similarly, food is consumed in harvesting oil. I imagine that pricing of the commodities and oil would account for the conversion costs.

On that note, energy is used to distribute food to the 'starved' of the world.

But lets face it, the starved of the world are not starving because we are short of food. They are starving because of distribution barriers (e.g., politics, wars, infrastructure, etc.) None of these can be overcome with either oil or corn. Well maybe.

I suppose oil can be used to lay down slicks in front of the eveel bad guys in black turbans with them AK somethings so they slip off the road and slide into the ditch while the brave man on the brave white horse gallops to the brave starving masses with a bag of rice. But alas, I have yet to see that on YouToob so it must not yet have occurred...

To avoid sounding callous, I am sure that pricing exacerbates the pain of those who are borderline. But this exacerbation of the increased the 'corn tortilla' pricing in Tiajuana is probably exacerbated by local politics/corruption. That is, it is a good boogeyman to distract the population from the local corruption that sucks many times more money from the population than an increase in food prices. This is not rocket science (although I did see a cool video on a methane rocket engine somewhere on the web tonight, is that from corn also?).

Isn't it true that in Mexico there are troops being sent to various states to quash an all out drug war that has killed thousands? I wonder what the economic effect of the corn pricing is relative to that kind of devastation?

Generally, discussion of a single variable (e.g., corn pricing vs. an infinite number of variables) is going to be a largely frustrating and useless experience. That should be plain from this blog.
6.18.2007 3:06am
jfd (mail):
Remember the Germans in WWII after the [successful] Ploesti air raids? No oil = no Panzers, no Luftwaffe, no lots of stuff, and lots of defeat. Hey, Japan, too!

Well, consider again the national security implications. We, arguably, have to have a corn-ethanol and soy-diesel infrastructure to survive incipient international blackmail [why are we so cozy with the Saudi's if we are The Great Hedgemon?] of this decade [pre-ascendency of China and India], not even contemplating the next.

And remember, all you non-farmers out there, where there's corn (nitrogen -), there's beans (nitrogen +). So, yes, ethanol and [soy] diesel are complementary products. Soy diesel should reduce some of the need for ammonia-based fertilizers, no?

Yes, it's costing a lot, as is quite evident in these comments. "Ye cain't have no free market if ye cain't defend it, no ways..."
6.18.2007 4:19am
TJIT (mail):
jfd you said
Well, consider again the national security implications. We, arguably, have to have a corn-ethanol and soy-diesel infrastructure to survive incipient international blackmail
That dog won't hunt. The data clearly shows that corn based ethanol and soy based biodiesel produced in the US are not a viable substiture for petroleum.

The Myth of ethanol
So, the next time someone tells you that ethanol production is going to reduce our fossil fuel usage, tell them that in the last 7 years annual ethanol production grew by 3 billion gallons, while annual gasoline demand grew by 14 billion gallons. This, despite steadily rising oil prices and record high gasoline prices.
6.18.2007 12:30pm
Smokey:
The October 2006 issue of Consumer Reports had an interesting cover story on ethanol. To travel the same distance as a gallon of gasoline will take you, using ethanol requires 20% - 30% more fuel by volume. That means you're blowing 20% - 30% more emissions into the atmosphere when using ethanol rather than gasoline, in order to travel the same distance.

When comparing the distance traveled, gasoline is cleaner than ethanol. After subtracting the ethanol subsidy, gasoline is also cheaper. Conclusion: Gasoline = The Green Fuel.


And anyone complaining about $3/gal gas should try this little experiment:

1. Turn off your engine

2. Put your car in neutral and get out

3. Push your car about twenty miles down the road.

Report back to us on whether $3/gal is too much.
6.18.2007 7:08pm
ATRGeek:
Once again, I will note that people seem to be leaping from the problems of corn-based ethanol to problems with biofuels in general. Also, people seem to be insisting that any one biofuel approach would need to substitute for gasoline on its own. Of course, there could actually be a host of approaches, including higher mileage standards and a gradual shift away from gasoline engines and towards diesels, diesel hybrids, and plug-in diesel hybrids (all of which would allow greater use of more efficient biofuels as well as other alternatives to petroleum).

I'd also note as an aside that although biofuels may create land use issues, from a security perspective it is very much a virtue that we could buy biofuels from wherever in the world plants grow (and more places, in fact, than food can be grown), and not just wherever enough oil was in the ground. Again, that is one of the looming tradeoffs between environmental and security concerns. Similarly, there are potential environmental issues associated with, say, using coal to general electricity for the grid and then using that electricity for plug-in vehicles, but that would be a very effective change from a security standpoint. And so on.
6.18.2007 7:40pm
jfd (mail):
TJIT said: "The data clearly shows that corn based ethanol and soy based biodiesel produced in the US are not a viable substiture for petroleum."

What you say makes sense to me only if you are caught up in a sweet fantasy of a perpetually war-free economy where free markets are functioning and fluffy sheep gambol thru the flowering meadows.

I, conversely, am merely pointing out that there may [likely?] come a time when we cannot obtain any fuel from overseas (Brazil included due to terrible traffic jams at the Isthmus). Meeting the need then will only occur entirely outside of 'normal' market forces, i.e. military procurement using coercion by fiat as much as is necessary up to the maximum coercion available.

Preparation for this contingency is our obligation to ourselves. It is a necessary expense and should be treated as a normal cost of doing business via taxation, whatever. My real 'beef' (I know, how 'corny') is that libertarians seem to imagine they/we will be able to wage some sort of free market war, such inane illusion thereby making it even more difficult for our government to discuss, much less openly enact, a responsible policy for guaranteeing energy availability under adverse conditions of future wars.

Failure to prevail in such eventuality would guarantee a very long absence of free markets to fiddle in, I would not doubt. Ethanol and Soy Diesel might do very well powering tanks, humvees, generators, and the occasional aircraft carrier, no? So they would seem, rather, to be excellent substitutes--in a pinch.
6.19.2007 2:41am
TJIT (mail):
jfd, you said
What you say makes sense to me only if you are caught up in a sweet fantasy of a perpetually war-free economy where free markets are functioning and fluffy sheep gambol thru the flowering meadows.
This paragraph and the rest of your post are filled with lovely slogans and utterly devoid of facts.

The fact is ethanol and biodiesel require massive petroleum inputs to produce. It is doubtful that they contain as much energy as it took to produce them. In other words it is likely to take more petroleum to produce them then they replace.

As a bonus the rise in food costs caused by biofuels hurts poor people. Furthermore the rush to produce biofuels is causing massive environmental damage.

These are the facts, you can decide if you want to ignore them or not.

Being gullible and swallowing the propaganda of ADM without question is bad for the environment and bad for poor people.


What about the land?
The hype over biofuels in the U.S. and Europe has had wide-ranging effects perhaps not envisioned by the environmental advocates who promote their use. Throughout tropical countries like Indonesia, Malaysia, Brazil, and Colombia, rainforests and grasslands are being cleared for soybean and oil-palm plantations to make biodiesel, a product that is then marketed halfway across the world as a "green" fuel.
6.19.2007 12:26pm
jfd (mail):
TJIT, dear, you claim that "The fact is ethanol and biodiesel require massive petroleum inputs to produce."

I recall reading a number of posts in this thread that convincingly disagreed with that assessment while linking to substantiating material. I do not recall The TJIT repudiating those assertions. Maybe thse assertions, they are the Fluff. Maybe The TJIT, he is the Fluff, gamboling in flowering fields, as it were.

As for The TJIT's anguished cries over the massive destruction of rain forests, well, how can The TJIT imagine that I, the jfd, do not wail alongside him in the face of such a grotesque inversion of evil results from "good" intentions?

So, dear TJIT, as "gullible" as I may be, I don't see how making a point regarding national security indicates I have swallowed Archer-Daniels-Midland's propaganda. Gosh-a-rootee, there's just too much to swallow! As for your concerns over the fates of the rain forests, you might sound relatively more dispassionate if you sounded less like a parrot with regard to the manifestly obvious inefficiencies inherent in ethanol production.
6.19.2007 3:57pm
TJIT (mail):
jfd said,
TJIT, dear, you claim that "The fact is ethanol and biodiesel require massive petroleum inputs to produce."

I recall reading a number of posts in this thread that convincingly disagreed with that assessment while linking to substantiating material.
Got cite? I saw one link above that went to a site that said some studies showed ethanol had a positve energy balance and other studies showed ethanol had a negative energy balance.

The fact that there is any question on the energy balance of ethanol makes the idea of it being a replacement for petroleum highly suspect.
6.19.2007 8:54pm
TJIT (mail):
jfd said,
TJIT, dear, you claim that "The fact is ethanol and biodiesel require massive petroleum inputs to produce."

I recall reading a number of posts in this thread that convincingly disagreed with that assessment while linking to substantiating material.
jfd you have not been paying attention.

There were several links provided by me and other people above that clearly showed ethanol is not a feasible replacement for petroleum and it requires massive petroleum inputs.

From A Zarkov

Ethanol—Bio-fuels or bio-fools?

From A Zarkov

Corn ethanol unprofitable by 2008, says Iowa State

Fom TJIT

The Myth of ethanol

From TJIT

Ethanol boondoggle
6.19.2007 9:23pm
TJIT (mail):
jfd,

Another link showing the massive petroleum inputs needed to make ethanol.

Petroleum inputs into ethanol

To make ethanol, we use petroleum-fueled tractors to plow the fields. We apply petroleum-based herbicides to kill the weeds. We apply petroleum-based pesticides to kill the bugs. We apply petroleum-based fertilizers to feed the plants.

We harvest the corn with petroleum-fueled tractors, and ship the corn to the ethanol plants in petroleum-fueled trucks. The ethanol plants are natural gas hogs, consuming enormous quantities to ferment and purify an ethanol solution that is primarily water.

We then ship the ethanol, often halfway across the country, in petroleum-fueled trucks. The customer on the receiving end pays less than market price for the ethanol, due to the subsidies, which are paid by taxpayers. Then, they suffer a decrease in gas mileage, meaning they have to fuel up more often.
6.19.2007 9:33pm
TJIT (mail):
jfd, Another detailed and comprehensive link for you that plainly demonstrates what a boondoggle corn based ethanol is.

Thermodynamics of the Corn-Ethanol Biofuel Cycle

The industrial corn-ethanol cycle brings no energy savings and no lessening of the U.S. energy dependency on foreign crude oil, natural gas, and liquified petroleum gas. The opposite happens,

(a) we import somewhat more methane, LPG, and crude oil;
(b) we burn thesefossil fuels to produce corn and ethanol; and
(c) we burn the corn ethanol in car engines.

All three steps of this cycle increase the extent of environmental damage beyond that caused by burning the same fossil fuels directly in the cars.

With the corrected estimates of the fossil fuel inputs to corn farming and ethanol production, and using the high heating values of fossil fuels, three published estimates predict that production of corn-ethanol is the fossil energy losing proposition, and two show slight surpluses, see Figure 19.

When the low heating values are used, all published analyses show that the corn ethanol's calorific value is less than those of the fossil fuels.
6.19.2007 10:08pm
TJIT (mail):
There are only three classes of people who like the current biofuels fiasco.

1. Farmers and agribusiness companies who benefit from all of the money taken from taxpayers and given to them

2. People who are eager to "do something" but don't understand just how expensive and counterproductive current biofuels are.

3. The politicians who generate support for themselves by shoveling money from the taxpayers and giving it to the farmers who raise corn and the agribusiness companies who make ethanol.
6.19.2007 10:16pm
Mark in Texas (mail):
TJIT

Well, at least you are not citing David Pimentel. Even the oil industry flacks are too embarrassed by his crap "study" which he recycles every few years to refer to that one any more. Of course, Ted Patzek isn't really any better.

THE big reason that demand for ethanol has grown so much over the last few years is that Tom Delay was not able to get a protection against lawsuits for makers of MTBE included into the energy bill a few years ago. MTBE was a gasoline additive that had been used for years to raise the octane rating for gasoline and as an oxygenate in those areas where the EPA required oxygenated gasoline. In the face of billions of dollars worth of potential law suites, NOBODY is using MTBE in their gasoline any more. Since MTBE made up approximately 5% of the volume of the gasoline sold in the US, it is not too surprising that the price of gasoline has gone up, demand for gasoline being quite inelastic in the short term as several others have pointed out.

The only EPA acceptable substitute for MTBE is ethanol. We are building ethanol plants as fast as possible. I have read one article comparing the construction of ethanol plants in the US to the construction of airplanes in WW II. We are also importing as much ethanol as is available on the world market. We imported a billion gallons of ethanol from Brazil last year. The Brazilians consume the rest in their domestic market or export it to Europe and Japan.

Because the price of corn is near $4.00 these days, the federal government is not subsidizing the growing of it any more. The subsidies were price supports and they only kick in if the price gets too low. The federal government saved approximately $2 billion last year in corn price support subsidies that were not paid out due to the high price of corn.

This year, a whole lot of farmers are going to be planting corn instead of whatever it was they planted last year. That means that the price of corn will probably not hit $4.00 a bushel this year unless it is driven that high on a speculative bubble. Prices of other agricultural commodities might well hit new highs, though.

Instead of whining about all the jungles and scrub lands that are being cleared and planted with sugar cane, you might be happy that very poor people in third world countries are finally getting an opportunity to produce a desired product for the world economy that will raise their standard of living to merely poor instead of edge of starvation levels.

The fact that it makes the air cleaner is just an added bonus.
6.20.2007 12:07am
TJIT (mail):
Mark in Texas,

You show a rather impressive ability to pack a massive amount of utterly wrong statements in one post. Your statements are in block quotes
THE big reason that demand for ethanol has grown so much over the last few years is that Tom Delay was not able to get a protection against lawsuits for makers of MTBE included into the energy bill a few years ago. MTBE was a gasoline additive that had been used for years to raise the octane rating for gasoline and as an oxygenate in those areas where the EPA required oxygenated gasoline.
Ethanol use has taken off because congress mandated its use. The oxygenate mandates were put in place in hope that it would force ethanol to be added to gasoline. When that did not work the farm state politicians simply mandated ethanol usage in gasoline.

Yet another example of why the ethanol market would not exist if it were not for farm state politicians diligent efforts to steal taxpayer money and give that sweet, sweet ethanol welfare to corn farmers and ethanol producers.
6.20.2007 1:41am
TJIT (mail):
Mark in Texas, your statements in italics this time

We are also importing as much ethanol as is available on the world market

Your are dead wrong, we have a tariff on imported ethanol to keep it out of the us market

Petrobras Head Urges U.S. to Cut Ethanol Tariffs, Open Market
The U.S. should cut tariffs on ethanol and allow lower-cost Brazilian producers to tap demand for the alternative auto fuel in the world's biggest market, said Jose Sergio Gabrielli, head of Brazil's state oil company.

A tariff of 14.27 cent a liter (54 cent a gallon) makes it unprofitable to sell ethanol in the U.S.
6.20.2007 2:00am
TJIT (mail):
Mark in Texas in italics

Because the price of corn is near $4.00 these days, the federal government is not subsidizing the growing of it any more. The subsidies were price supports and they only kick in if the price gets too low. The federal government saved approximately $2 billion last year in corn price support subsidies that were not paid out due to the high price of corn.

This year, a whole lot of farmers are going to be planting corn instead of whatever it was they planted last year. That means that the price of corn will probably not hit $4.00 a bushel this year unless it is driven that high on a speculative bubble. Prices of other agricultural commodities might well hit new highs, though


I guess boosters of the ethanol welfare program never consider the fact that those artificially high prices are damaging those folks who don't produce ethanol or corn.

Ethanol's growing list of enemies
Hitch and an unlikely assortment of allies are raising their voices in opposition. The effort is uniting ranchers and environmentalists, hog farmers and hippies, solar-power idealists and free-market pragmatists.

They have different reasons for opposing ethanol. But their common contentions are that the focus on corn-based ethanol has been too hasty, and the government's active involvement — through subsidies for ethanol refiners and high tariffs to keep out alternatives like ethanol made from sugar — is likely to lead to chaos in other sectors of the economy.
6.20.2007 2:22am
TJIT (mail):
Mark in Texas in italics

Instead of whining about all the jungles and scrub lands that are being cleared and planted with sugar cane,

I put those facts up to educate the uninformed folks who think ethanol is good for the environment.

very poor people in third world countries are finally getting an opportunity to produce a desired product for the world economy that will raise their standard of living to merely poor instead of edge of starvation levels.

Like everything else in your post wrong

Diverting sugar and maize for biofuels could lead to hundreds of thousands of deaths from hunger worldwide, the United Nations' food envoy warned on Thursday.
6.20.2007 2:27am
TJIT (mail):
Mark in Texas in italics

The fact that it makes the air cleaner is just an added bonus.

No one should be surprised at this point but once again you are wrong.

Study warns of health risk from ethanol

If ethanol ever gains widespread use as a clean alternative fuel to gasoline, people with respiratory illnesses may be in trouble.

A new study out of Stanford says pollution from ethanol could end up creating a worse health hazard than gasoline, especially for people with asthma and other respiratory diseases.

His study showed that the city would experience a 9 percent increase in the rate of ozone-related respiratory deaths -- 120 more deaths per year -- compared with what would have been projected in 2020 assuming continued gasoline use.

Only in the upside down world of ethanol welfare could creating additional pollution that will kill an additional 120 people per year be considered to be cleaning the air.
6.20.2007 2:33am
Mark in Texas (mail):
TJIT

No, sir, it is you who are wrong. And not terribly polite in your wrongness either.

Ethanol use has taken off because congress mandated its use.

Congress mandated a 700 mile fence on the Mexican border but that hasn't happened. How is it that Congress mandates ethanol content and there is instant compliance?

The oxygenate mandates were put in place by the EPA because environmentalists had been wanting them forever. The fact that modern computer controlled fuel injected engines already accomplish what they were hoping to achieve with oxygenates back when all cars used carburators does not cut any ice with the true believers of the church of Gaia. They wanted oxygenates and they finally got the political pull to get them.

Those oxygenate requirements were fulfilled by the gasoline producers adding more MTBE to the mix. MTBE did not have the volatility issues that oil industry flacks were braying about when ethanol was first used in California gasoline. Funny that since MTBE was replaced with ethanol, Los Angeles has averaged fewer smog days than before.

MTBE could also be mixed with the gasoline at the refinery and sent through the pipeline and probably as much as any other consideration, before 2000 most US ethanol production was concentrated in ADM and Cargil. The gasoline makers did not want to put that much control into the hands of a few other companies.

When threat of lawsuits ended use of MTBE, ethanol was the only alternative allowed by the EPA.

Ethanol is mixed into gasoline today because certain octane ratings are required and 1) Tetraethyl Lead was banned in the late 1960s so it cannot be used to raise octane 2) there are many places claiming that MTBE from leaky gas station tanks have threatened to sue gasoline makers who mix MTBE into their gasoline and the makers of MTBE.

Shout about conspiring farmers all you want. Corn farmers are certainly happy with the current situation, but they did not cause it. Thank the EPA and the litigious municipalities who were hoping to have the gasoline producers buy them new water treatment plants for that.
6.20.2007 2:56am
Mark in Texas (mail):
TJIT

More wrong stuff from you.

Your are dead wrong, we have a tariff on imported ethanol to keep it out of the us market

Petrobras Head Urges U.S. to Cut Ethanol Tariffs, Open Market

The U.S. should cut tariffs on ethanol and allow lower-cost Brazilian producers to tap demand for the alternative auto fuel in the world's biggest market, said Jose Sergio Gabrielli, head of Brazil's state oil company.

A tariff of 14.27 cent a liter (54 cent a gallon) makes it unprofitable to sell ethanol in the U.S.


If it is unprofitable to sell Brazilian ethanol in the US because of the $0.54 a gallon tariff, how come the US imported a billion gallons of the stuff from Brazil last year? Is it your contention that the Brazilians sent us that ethanol for our cars out of the goodness of their hearts even though they lost money on the deal?

Ethanol costs approximately $0.50 per gallon to make from sugar cane in Brazil. The wholesale price of ethanol in the United States is more than $2.00 a gallon. After shipping it here and paying the tariff, there is still plenty of profit. I am sure that Mr.Gabrielli wishes that his profit were $0.54 a gallon higher, but even if that import tariff were eliminated, they don't have any more ethanol available to send here.

Unlike the legal system where a judge says "fiat lex" and there is a new law, the physical world requires that processing capacity be built, raw material be obtained and processed and the product be shipped before you actually have real, physical stuff like ethanol.

By the way, nations that are part of the Caribbean Basin Initiative are entitled to import up to 7% of US ethanol production into the US without having to pay that import duty. So far they are not taking advantage of that program. Maybe that is because they don't have the capacity to produce 7% of US ethanol production. I hope that they build that capacity soon. I would like to see some of the money that the US spends on transportation fuel going to raise the standard of living of countries in Central America and the Caribbean.
6.20.2007 3:17am
Mark in Texas (mail):
TJIT

I guess boosters of the ethanol welfare program never consider the fact that those artificially high prices are damaging those folks who don't produce ethanol or corn.

I don't produce ethanol or corn and I don't feel anymore damaged than by the corn subsidies that kept corn prices artificially low for so many years.

Those millions of consumers in China and India who have the effrontery to be joining the global middle class and increase the demand for gasoline and petroleum products never bothered to consider how their new lifestyles are damaging other people either.

Things change. Ethanol did not used to make economic sense. If the price of oil went below $32 a barrel it would not make economic sense any more. However when both China and India abandoned their dysfunctional socialist economic systems and joined the world economy, the demand for petroleum went up sharply and ethanol changed from a political boondoggle to an economically rational energy source.

Of course, some people have a hard time dealing with change and continue to rant about things that were true when they were young but which have not been true for a while.
6.20.2007 3:32am
Mark in Texas (mail):
TJIT

Diverting sugar and maize for biofuels could lead to hundreds of thousands of deaths from hunger worldwide, the United Nations' food envoy warned on Thursday.

One of the most serious problems that rural people in third world countries have faced, aside from their own corrupt kleptocratic governments, has been subsidized food produced in first world countries being dumped below cost into their markets. Farmers in those countries cannot compete with food that cheap and so they are stuck in endless poverty or they drift into the slums of the cities where they are still poor but at least life is more interesting and they can get some of that welfare food.

Of course, the UN official does not want that system to stop. He has a good paying comfortable job.

If every tropical country that can grow sugar cane starts producing ethanol that is used in their own transportation fleet and exported to places like the United States, Europe and Japan, there would be a whole lot less excuse for UN bureaucrats to fly around the world going to conferences and making dire predictions to gullible reporters. How awful it would be if third world countries were no longer pathetic victims depending on the rest of the world for food handouts but instead became self sufficient members of the world community selling ethanol and buying whatever suits their fancy rather than what some UN official thinks they ought to have.
6.20.2007 3:50am
Mark in Texas (mail):
TJIT

Study warns of health risk from ethanol

And this time we have David Pimentel cited in the article. That should be a dead givaway.

Similar warnings were in the west coast papers all the time after California banned MTBE and learned that ethanol was the only alternative. The ethanol, being more volatile was going to evaporate from the gas tanks of Southern California combining with the smog clouds to form horrible witches brews of toxic chemicals and possibly ending all life in the Los Angeles basin.

Anyway, they have been using gasoline with ethanol for several years now and they are actually measuring less pollution and fewer smog alert days than before despite more cars driving more miles on the freeways of Southern California.

Here is a rule of thumb that I have found to be useful:

When real world data contradicts your computer model, it is much more likely that there is something wrong with your model than that the world is in error.
6.20.2007 4:16am
TJIT (mail):
Mark in Texas

The fact that modern computer controlled fuel injected engines already accomplish what they were hoping to achieve with oxygenates back when all cars used carburators does not cut any ice with the true believers of the church of Gaia. They wanted oxygenates and they finally got the political pull to get them.
So ethanol does not do anything to reduce pollution in fact it actually increases airborne pollution. . And ethanol decreases fuel economy. And it has a debatable energy balance.

It seems pretty clear that if corn growers and ethanol refiners had not gamed the system to mandate ethanol usage it would be a market failure in additon to the economic, engineering, and environmental failure it already is.
6.20.2007 1:03pm
TJIT (mail):
Mark in Texas

Shout about conspiring farmers all you want. Corn farmers are certainly happy with the current situation, but they did not cause it.
If you had actually followed the farm bill debates and what the corn growers (National Association of Corn Growers) have lobbied for and gotten over the years you would realize how laughable that statement is.
6.20.2007 1:08pm
TJIT (mail):
Mark in Texas,
I don't produce ethanol or corn and I don't feel anymore damaged than by the corn subsidies that kept corn prices artificially low for so many years.
The corn growers have demanded and used subsidies for years. These subsides were not lobbied for or advocated by the beef producers, or the pork producers, or the poultry producers. Anybody with any economic sense knew that subsidies would lower corn prices but that is what the corn producers wanted and that is what they got.

With ethanol the corn growers and ethanol producers have managed to shovel the negative economic results from their subsidy programs on to bystanders in other industries.

Brilliant for the corn growers and ADM not so good for the bystanders
6.20.2007 1:35pm
TJIT (mail):
Mark in Texas,

We are going to have to agree to disagree. My apologies for being hot headed up the thread.
When real world data contradicts your computer model, it is much more likely that there is something wrong with your model than that the world is in error.
Mark there were abundant links provided by many people on this thread that provided detailed, real world data.

This data clearly showed ethanol is an engineering, economic, and environmental train wreck. You can ignore the information if you want, that does not mean the information is not there.

Have a good day, hope you are having pleasant weather Texas.

TJIT
6.20.2007 1:44pm