If ethanol was being produced without a subsidy, I would have no problem. The new use of corn would change the dynamics of the market, but that's life. The only remedy would be to implement price controls or ban the production of ethanol. Either remedy would cause more problems than it fixes.
But the fact is that ethanol is being produced with a huge honkin' subsidy. This is a big problem. The subsidy allows ethanol producers to out-bid people who wish to consume food as food, using government money. The government will then, no doubt, turn around and subsidize the food to make sure nobody starves. This way lies madness.
"This way lies madness."
The Hugo Chavez model, anyway.
Too right! If Ethanol were a viable fuel then it wouldn't need subsidy. And, as you say, subsidy distorts the market for the other uses of the ethanol-producing stock. It's demented.
Who lobbied for the USA to lock into Ethanol? Corn-growers.