Posted on 09/04/2011 4:19:35 PM PDT by blam
Why Food For Fuel Is A Terrible Idea
By Jonathan Chen
Benzinga Staff Writer
September 02, 2011 12:17 PM
Pretty soon, corn will be more valuable than a barrel of oil.
There is an article on Bloomberg Government from last month that still holds true today. (Gasp! Something written more than 30 seconds ago still holds true?)
It is a sad fact that the U.S. is using corn almost as much as Saudi oil as fuel in this country. The "food for fuel" idea has been around for a long time, and it has been seen as a bailout of the farmers of the past who were unable to sell their excess corn.
That time has come and gone, with the world's population approaching 7 billion later this year.
In the article, senior finance analyst Vijay Sankaran talks about what exactly is going on. He goes on to say that Ethanol is impacting the various Republican presidential candidates, as some support the "bailout" of the farmers, while others, like former Utah Governor Jon Huntsman Jr. do not.
Sankaran writes, "The U.S. government has supported the ethanol industry through a series of tax credits and tariffs. In addition President George W. Bush signed legislation in 2005 mandating how much ethanol should be in gasoline consumed in the U.S. The volume under this Renewable Fuel Standard was 9 billion gallons in 2008.
The mandated volume will reach 15 billion gallons by 2015, the same amount of crude oil the U.S. imported from Saudi Arabia in 2009. Saudi Arabia dropped from being the top single source of crude oil for the U.S. in 2000 to the third-biggest in 2010, behind Canada and Mexico, according to the Energy Information Administration."
President Bush had a good idea to try to increase jobs in the United States, and at the same time, get the U.S. off its addiction of foreign oil. However, this idea has a terrible side affect. It has caused corn prices to soar, as evidenced by this chart. Using food for fuel is a terrible idea, as it constrains one commodity to try to replace another. We have seen the rise in corn prices affect everything we eat. Meat has become more expensive, as feed for cattle has become more expensive. This is evidenced by both live cattle and feeder cattle.
As the world's population continues to grow, and corn supplies continue to be even more constrained, we will see prices rise. It's basic economics. The law of supply and demand. This has never been more precedent than what we are seeing in the fertilizer names, like Potash (NYSE: POT), CF Industries (NYSE: CF [FREE Stock Trend Analysis]) and Mosaic (NYSE: MOS). These companies are seeing record earnings, thanks in part to farmers' demand for fertilizers.
When Potash released earnings, President and Chief Executive Officer Bill Doyle said, “The continuation of strong fertilizer demand combined with the limitations of global production, especially in potash, resulted in tight fertilizer markets and rising prices for our products. With farmers committed to increasing yields and capitalizing on the unprecedented economic opportunity, we worked to keep pace with growing demand, which resulted in a record quarter for our company. We believe our ongoing investment in expanding potash operational capability is playing an integral role in the world's food story, and we demonstrated our increased ability to deliver – for our customers and our shareholders.”
"[U]nprecedented economic opportunity." Those three words should ring echoes in Washington, and unfortunately, they are not. It is one thing to try to help your country's exports, which is the job of any President. It is completely another to do it haphazardly. When it is hurting everyone, especially the lower and middle classes, it does net no economic good.
The Obama administration has tried to move towards electric cars and furthering this process, but unfortunately, mass production and wide spread adoption of electric cars is years away. Most Republicans back the ethanol tax credit and subsidies provided to farmers, as that is where the majority of their constituents are based. Nebraska. Iowa. Idaho.
Until the food for fuel mantra changes in Washington, inflation will only continue to hurt those that can barely bear the brunt of it now.
It wasn’t that long ago that if you brought this subject up right here on FreeRepublic, you were shouted down by the pro-Bush/corn ethanol crowd.
Subsidizing it is crazy. If it made sense, the government wouldn't have to subsidize it. Borrowing 40 cents of every subsidy dollar is insane.
The only place for ethanol is in a drink. These subsidies are a perfect example of the kind of crony capitalism that Sarah was talking about in her speech.
Republicans, especially the Georgetown Cocktail Party set, need to get their collective heads out of their nether regions and realize that they are going to have to wean their business constituent communities OFF the government tit.
The author of the article is blowing it out his arse.
Harness that methane!
Ha! Good one!
If that were true, you’d be right - but comparatively little corn grown here goes into actual food. A tiny bit goes into sweet corn production, but most corn grown, is just feed - that hasn’t been turned into steaks yet.
Ethanol production just turns the starch in the kernel into alcohol.
This part is important boys and girls - pay attention -
The remaining mash is sold as Distillers Dried Grains and - sold as feed rations, just as customary, to make steaks and beef products that millions of people enjoy.
Anyone making this argument isn’t being honest, or at least very uninformed.
Wonder what “favors” were exchanged to sell this stupid idea? I’ve wondered a long time.
Bush signed it, bought into it and embraced it. Why? How did he become convinced this could ever be a good idea? He was not alone. He had lots of help.
Who got paid off and how much?
Doing something this stupid could only have happened by greed and stupidity.
When will it get reversed? When will the gravy train end for the farm belt?
Good points, I suppose, and I’ve also heard that the ethanol fuel deal is becoming more economically feasible.
So when they can do it without tax dollar subsidies, sign me up.
And what SHOULD be done with our mountains or surplus? Plow it under?
All of this basic corp is converted to another form before human use, fuel is just one a a dozen viable options for a farmer to choose.
I used to convert it to pork, many still chose to do so.
Well, oil is subsidized?
It seems to me strange that these kinds of emotional arguments have to be made (with respect to Ethanol), for my part the real downside is that the engines are not tuned for alky. A “flex fuel” engine isn’t (yet anyway) optimized for the slower burning alcohol, and the compression ratio is way too low regardless. Timing can also be advanced quite a bit, and at least with computerized fuel injection, the pulse width can lengthened.
In real cold weather, gasoline is much easier to use, as it starts off better. It’s possible to fill up with, mix, or end up with anywhere from 10% to 85%
alcohol and everything in between and it just seems like there must be too many compromises made in tuning to make a flex fuel auto.
My point is that ethanol and gasoline are very different fuels and “adaptive strategies” aren’t quite there yet. It’s great stuff but it’s like burning 120 octane in a lawnmowers, no point in it if the engine isn’t setup to take advantage of it.
You have corn surplus to your needs? Grow something else. You want to turn it into ethanol? Go ahead. Do it without a hefty government subsidy AND protective tariffs and you have my blessing.
Corn doesn’t require the 7th Fleet to protect it!
You can sell your "surplus" corn at $7 a bushel. If you can't make money at that price, you should grow something else. If you grew so much that you have a "surplus" (although I can't really imagine what you are talking about), whose fault is that?
How about planting other crops?
And drop the ethanol mandates.
We’re still here, but there’s not much reason to respond to an author who complains that US agriculture is too productive and who is unaware that an acre of corn requires less potash than an acre of the forage with which he would replace the corn.
Now, you’re talking politics, and changing the subject, however my point is that “food into fuel” argument isn’t factual.
Yes there are subsidies for growing corn (or were). There were people paid, even, I’m told, NOT to grow corn, but I’m pretty sure I can’t burn THAT in my car.
See where I’m going with that? There are a bazillion subsidies and tax credits and tax debits and surcharges and fees and if anybody knows what a gallon of juice is REALLY costing us, they aren’t telling.
I know the dollars stay in the local community and banks and feedlots and
jobs for the locals. They are deposited in banks and further lent out and the distilleries are getting the expertise and infrastrucure down so they can
utilize other feedstocks - cellulosic. Many other things than corn can be (partially) utilized to make ethanol. This is a good fuel if done right, the detractors always turn this kind of thing into either/or arguments - hysterical claims - these are the hallmarks of detractors having no factual arguments.
There’s no silver bullet for energy folks. Lp natural gas has promise. Small diesels would be excellent in pickups like the Ranger here in America but for federal red tape are not available. The BTU rating is higher than gasoline.
Reading these posts from time to time one would think all that we eat is CORN! Corn meal, corn oil, and corn flakes would be the main foods. Sweet corn is a different corn and is not used for ethanol. And yes, the by-product from ethanol is still used for animal feed. The only argument to make would be the subsidization by the government.
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