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A Latin American Left Watch ping on thread article and the very fine forum discussion.

This is a challenging article Kitten, I really enjoyed reading it. I want to address the Brazil-U.S.-Venezuela configuration and then go on to make a comment about ethanol, because there has been some lively and spirited discussion here about the wisdom and feasibility of producing it in the U.S. and I have a couple of things to say about that.

Kitten, you know that I have been following the relationships between Hugo Chavez's Venezuela and everyone else and that I have reported I see genuine strains developing between Chavez and his formerly-close neighbors of Brazil, Argentina, and Chile; all of whom I am sure are taking steps to distance themselves from him, now that "the mask is coming off" in Venezuela. I'm not sure that it was ever in Brazil's interest to restrict American access to oil or ethanol technology, so I might not go quite as far on asserting the significance of this agreement as relating to Chavez and oil from the Brazilian perspective. There can be no doubt however, that American anxiety over oil supplies is rising as Chavez's Gleichschaltung proceeds in Venezuela, our interest is easily-defined, and Condi Rice just said so a couple of days ago, and we need go no further after that.

I am struck by the timing and the tone of this agreement, neither of which I believe is an accident. Timing speaks for itself; Iran and Russia have been pursuing oil development policies that are openly designed to limit the supply of cheaply-available oil on world markets and the fact that they are targeting the U.S. in doing so is clear. The Middle East is; well, the Middle East. It is always uncertain. And now you throw in Venezuela and the threat to American oil supplies -- we might say "affordable" oil supplies -- is an immediate and pressing matter to address. But the tone expressed in the public statements between Brazil and the U.S. is something new also. In diplomacy and foreign affairs tone can frequently tell you a lot, and what it says here is that Washington and Sao Paulo see a reason why they should be friends. We are still waiting to see what will happen when the presidents of Chile and Brazil visit Mexico soon, because they will have an opportunity on those occasions to present a pro-business -- read "pro-investment" -- anti-Chavez tone in their public statements. To the degree that this thread article offers us anything in the way of guessing what the tone of those coming declarations will be, it says that we have reason to hope that Chavez will be singled out for criticism. I have been writing that I see an international political realignment in Latin America taking shape to marginalize Chavez and your article's hypothesis fits in with that; but Bachelet's and Lula's coming visits to Mexico will be where we will really see what is going on there.

Now; to move on to ethanol, let me put up a couple of the most basic facts of chemistry. Ethanol is a particular type of alcohol. Alcohol is produced from sugar. Even if you use corn to produce ethanol you must first enhance its sugar content and then in some fashion make that sugar readily available for the distillation and/or extraction process that produces ethanol. And given that individual commodities -- such as high fructose corn syrup, one of corn's most significant products -- have their prices affected by other commodities -- such as sugar in this instance -- which can be used as substitutes, it must be understood that the basic chemistry of the ethanol producing process is every bit as closely attached to sugar as it is to corn, since ethanol is produced from sugar in some fashion.

When treating it as an industry, we should separate the profitablility of producing ethanol for fuel from its necessity. Let me deal with the latter first. The U.S. must strengthen its ability to produce its own energy as a matter of national security. As always; doing that comes down to our dependence on oil. And since the internal combustion engine is here to stay, we must address the supply of fuel to keep American automobiles running. There are no other proposals out there to structurally alter our ability to maintain our motor vehicle fuel supply beyond that of producing ethanol as a gasoline additive. We've got to do it, even if it is a more costly proposal than ethanol proponents suggest, which I am fairly certain is the case.

The profitability of ethanol is a little more complex to address. But; to express it in mathematical language without providing specific figures to demonstrate the argument, the profitability of ethanol is a function of the price of gasoline, which in turn is a function of the price of oil. To put it in the simplest terms possible, if the price of a barrel of oil goes high enough, ethanol becomes profitable. Fluctuations in the price of oil are one of many reasons -- there are other important ones -- why the American ethanol industry has had such a rocky history. Given that the figures presented pro and con have shown such wide variance, I will only go so far as to say that at $30 per barrel oil, ethanol is not profitable and at $50 per barrel it is. Somewhere between those two prices for a barrel of oil ethanol production becomes a successful business enterprise, though exactly where depends upon who is presenting the evidence.

Ethanol's economic viability as it relates to the price of oil is a major issue because the cost of ethanol production is so high that profits are at risk if the price of gasoline, which is what ethanol must be added to, is low enough that using pure gasoline becomes cheaper. Why then, has there been almost no discussion, other than the usual tax break proposals to enhance corporate welfare further, in all the public debate about enhancing ethanol productivity, of lowering the cost of producing it? It's very obvious how that can be done to anyone who understands that the most important price supports for corn and the various products produced from it are primarily aimed to protect one commodity, high fructose corn syrup, the Holy Grail of corporate welfare, whose price is primarily kept safe in the various import restrictions, price supports, and more which taken together constitute the "Sugar Subsidy."

If the U.S. is going to get serious about producing ethanol as a gasoline additive it must remove the Sugar Subsidy. No single act of the federal government could do more to enhance ethanol's profitability, especially now as oil prices have recently fallen. To undertake a huge national investment in ethanol, a large portion of the cost of which will be borne either directly or indirectly by public resources, while simultaneously supporting the price of both sugar and high fructose corn syrup will make the entire effort one more in a long list of disastrously-expensive federal government efforts, albeit of the best of intentions, to plan and fund American economic and industrial development. Unless oil prices once again show a dramatic and sustained spike soon, ethanol's profitability and viability will be restricted by our continued maintenance of a price support system for sugar and high fructose corn syrup. Trying to support an entire industry from the public purse which is made unprofitable by other public policies portends for a fiscal disaster.

As to the HFCS "Sugar Subsidy".

ADM is very concerned about the rapid growth of ethanol, it is trying to get as many corn futures bought two to three years ahead of time as it can. As one of the big recipients of the sugar subsidy, and the ethanol, it is interesting to me that they seem to be positioning themselves to protect the HFCS, and not the ethanol as much.

And yes, at $50 ethanol is profitable, as long as you have an outlet for the feed. If you don't then it isn't.

Fine analysis, Saint, but you omitted two key factors (or I missed them...g!).

First, and ugliest, is the tariff on imported sugar. At this time, this amounts to about 60% of the price of sugar worldwide. You can confirm this figure by checking the closing prices of Sugar #11 (''world'' sugar) and Sugar #14 (''domestic'' sugar) on the NYBOT any business day.

This tariff is and has been indefensible for decades. It exists for one reason: the domestic sugar lobby, whose profits are so high (for a simple commodity-based business) that they can afford to and regularly do buy off the Regress, wholesale, so much a head with a cash discount. It serves no economic purpose whatever; sugar is hardly an indeustry needing ''protection''.

Secondly, one cannot discuss ethanol today w/o noting carefully that there is a sizeable tariff on imported ethanol, too, some 50-odd cents/gallon. Couple this with the blending subsidy, the other farm ''support'' largesse, and the sugar tariff, and in reality there are at least four different subsidies for corn-based ethanol in the US.

Remove these subsidies and absolutely nobody would use ethanol as a motor fuel -- and I don't give the tiniest tinker's damn how much high-value animal feed is produced as a byproduct of wet milling. We already have lots of animal feed, more than we can use in fact, so who gives a rip about the byproducts, eh?

The ethanol scam isn't about energy, or energy-independence (haha), or anything other than one thing: money. Boatloads of money. Your money. My money. Every taxpayer's money.

You are one of the few writers I've seen who correctly charactierises ''ethanol'' as being both about corn AND sugar. The problem is, sadly, that ADM almost never loses in D.C., and the sugar lobby NEVER loses. Put these two groups of pirates together in a cause, any cause, and it's a done deal.

More's the pity. But, it's typical; when government attempts to pick winners in the economic sphere, everyone -- I mean absolutely everyone -- other than ''the chosen'', gets screwed royally.

BOHICA, m'friend, but FReegards nonetheless.

I see genuine strains developing between Chavez and his formerly-close neighbors of Brazil, Argentina, and Chile

I see it, too.

Yours on the ethanol and sugar industries was brilliant.

And, if one is to step back and take another look at the larger scene, one can also see Pegs to the "Anti-Obesity" movement, and why. And why some schools and politicos wish to abolish "sugars" from students' diets.

Diabetes and Autism are on the rise in US children. Could high corn fructose be involved in these numbers? Remove those items, move the fructose/sugar over to a newer industry and use, keeping the economy stable in re GDP.

I'm all for America's "energy independence". And witnessing Chavez swimming in the oil he can't sell.