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.
I don’t feel like going through the thing tonight, maybe someone else can pick it up.
However, real quick, the huge surplus of 2009 corn nearly destroyed the hog industry in 2010. We, as a country, were within 60 to 90 days of the entire industry (all indiviual producers) going bankrupt. Direct result of too much corn.
We’ve had enormous surplus of corn since 1950. 2011 is no exception.
See tagline.
It may not be entirely relevant to the topic, but a few years back when talk about corn ethanol and alternative fuels from things like switchgrass was center stage, I did a back of the envelope calculation to find out how feasible these numbers were. The values are somewhat dated (two or three years) but here goes. If one were to convert the entire annual output of palm oil produced by both Indonesia and Malaysia to biofuel, it would satisfy the US domestic transportation industry for about 22 days or roughly three weeks. And they produce a LOT of palm oil, live in favorable tropical conditions, and grow the stuff like it’s going out of style. Given all that, the US temperate climate, and enormous demand for refined petroleum (gasoline), I see the “growing our way” out of the dependence on good old crude a pipe dream.
Actually, the current supply is in the 750 million bushel range and falling. Are hog producers any better off feeding $8 corn?
I’ve made that point a number of times here,and got ignored every time.People believe what they want to believe and there’s no use stating the facts.
The whole idea of using ethanol as a fuel is flawed. Ethanol has about 34% less energy per volume than gasoline so combining it with gasoline in any proportion results in a mixture with less energy than straight gasoline. Thus gasoline/ethanol blends REDUCE gas mileage. Last year about 40% of the US corn crop was turned into ethanol, yet ethanol provided only a about 10% of US fuel needs so even converting 100% of all the corn grown in the US would not substantially reduce our dependence on oil. Ethanol is a huge boondoggle.
Rule of thumb, better off feeding expensive corn than cheap corn.
Cheap corn leads to too much pork, beef, and poultry, and as a result, low prices.
America has a surplus of every food commodity.
Never before, in all of recorded history, has a country ever had such a wide voariety of food as such low prices.
That’s all pivioting on our oversupply of corn.
Hey, I keep an open mind about fuel, esp. at the pump! Biodiesel is another promising avenue. There may be some good arguments against ethanol, it’s just strange to me that the article didn’t list any, and left out the fact the food isn’t being diverted from starving grandparents as some would like you to believe. In general too, it is practically impossible for people to come to the right conclusions about issues and things if the facts they are given aren’t really facts but some kind of fear mongering editorial posing as science and such. In cases like these it really helps to see who or what is funding the debate if all they have is “facts” that aren’t really facts.
>> “Biodiesel is another promising avenue” <<
.
If you really believe that, I’d like to invite you to my investment seminar...
There you go again. If you burn ALCOHOL
In a GASOLINE engine
It doesn’t run very well.
This is a surprise? That’s why I question just about everything in the media and everything else, and half of what I do know.
Just look who’s for and again’st something, and you can usually figure out what’s going on.
>> “of food as such low prices” <<
.
I’d like to know where.
Certainly not in grocery stores, where most prices of meats have doubled in two years.
I don’t think you’re being ignored, it’s just that there is no ‘comeback’ to the facts.
Keep posting it, help others learn the truth.
There is no doubt that food prices have gone up considerably, so these numbers (going by memeory here) are a little dated;
from 1970 through 2009, food costs, as a percentage of income, fell by 30%, from just over 14% of income to just under 9% of income.
You won’t find a single falling food price in the US.
Lamb chops that used to cost $3.29 / pound in 2009 are now $8.99. That is almost triple.
Here are the valid arguments ethanol. Government subsidy, energy per unit and energy used to produce such unit. Yes, the article should mention these things but doesn’t. The food argument is the most emotional and effective.
Previous assessments by others and a few by myself support this conclusion... we ca’t grow our way out of oil dependence.
For another point of view, my screen background is a depiction of Estimated U.S. Energy Use in 2009, some 95 quads. At that time:
All Biomass, including Ethanol, is 3.88 quads or about 4% of all fuels, is this worth the disruption of ALL the food supply?
57% of all fuels consumed are wasted to heat and other non-productive uses
A 0.002% increase in efficiency of all other fuels would replace ALL the wind and solar now produced
Natural Gas production would have to almost Double to replace petroleum imports
Modern agriculture is the conversion of petroleum into food. This resulted in cheap, abundant food and less starvation.
Modern left-wing ‘green’ fuels, is the opposite. It will make food expensive and scarce and will result in starvation for millions in poor countries.
I do not think the government should be subsidizing fuel production, especially turning a basic food into fuel.
As I stated before, if you can make money turning corn into ethanol, go ahead. But you can't. You need a government subsidy and tariff barriers. The government is borrowing 40 cents of every dollar to subsidize the ethanol industry. The tariff is just a tax by another name.
Like I said, corn isn’t a “basic food crop”. It’s cattle feed, mostly. Yes, some is turned into cornflakes, some is turned into corn syrup.
After the starch is turned into fuel, the corn isn’t gone. It’s used for - surprise! Cattle feed.
Anyone who leaves out this basic part of the equation can’t really be trusted.
I don't care if you trust me or not. I'll do it backwards for you. If the US continues to borrow 40 cents of every dollar it uses for a useless ethanol subsidy it will go bankrupt. If you can produce motor fuel out of corn without a subsidy or protective tariffs, do it. You can't.
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