No one on this board would agree that we have suspended the laws of supply and demand. If the government increases demand by increasing subsidies to divert feedstocks for fuel, either the price of those feedstocks must rise or supply must increase. You have now suggested that the supply has increased. I am sure that it has for that is fully in keeping with the law of supply and demand. The problem is that the government' s subsidy arrangement is nearly infinite in its appetite. As I understand it Senator Hutchinson's bill was designed not to eliminate biofuels subsidies but to cap the amount of diversion away to biofuels. The projected diversion is breathtaking in its scope unless capped.
Our clever farmers must decide whether their feedstocks will generate more money by feeding it to their cattle or cows or by feeding it to the government. For example, if the government with its subsidies drives up the price of feedstocks, and the increase in supply is not nearly enough to offset the increase in demand created by the government, a farmer, seeing the price going up, is likely to decide that his feedstocks will go to biofuels unless the price of beef and milk rises high enough to warrant feeding it to animals. As long as the government keeps raising the bar, supply cannot catch up so the price must adjust. This is exactly what is happening.
