Tuesday, August 16, 2011

Corn Ethanol Scam: A Profligate Biofuel Policy

Robert Bryce writing in today's Washington Examiner:

"Today, about 40 percent of all U.S. corn -- that's 15 percent of global corn production or 5 percent of all global grain -- is diverted into the corn ethanol scam in order to produce the energy equivalent of about 0.6 percent of global oil needs. 

Corn prices, now close to $7 per bushel, have more than doubled over the past two years (see chart above). And recent harsh weather, including floods in the Midwest and drought in the South, will likely mean a subpar U.S. corn harvest. That, in turn, will mean yet higher prices for corn, which will translate into higher prices for meat, milk, eggs, cheese and other commodities.

"Livestock producers, restaurants, food manufacturers and consumers at the grocery store are all being penalized by this profligate biofuel policy," said Bill Lapp, president of Advanced Economic Solutions, an Omaha, Neb., commodity consulting firm."

HT: NCPA

38 Comments:

At 8/16/2011 8:26 AM, Blogger Don said...

Any Congressman who voted for this crap should be serving a lifetime sentence at hard labor, and fined 100% of their campaign funds.

Regards, Don

 
At 8/16/2011 8:40 AM, Blogger Larry G said...

Having traveled across the country and back recently - I can confirm that there is one heck of a lot of corn in crop... but I can also confirm that there is a lot of wheat in crop.. but more important.. I can report that there is vast, vast acreage that is NOT in crop and lies fallow..and formerly in crop.

you can verify this yourself. Just take a drive into any rural area and you'll see the remnants of many, many former forms - usually family farms.. small in size compared to most of the farms now growing corn - in most cases thousands of acres.

In other words, we still have a lot of land capacity to grow more corn ... wheat... and switchgrass....bio-fuels.

I also count sugar beets and sugar cane.

I totally disagree with the subsidy though and wonder how much bio-ethanol would actually cost if not subsidized.

keep in mind also that we export ... corn and wheat.... and they are both commodities on the worldwide market...

Brazil and other South American countries can apparently "grow" ethanol without a subsidy, no?

 
At 8/16/2011 9:18 AM, Blogger Hydra said...

What happens to a restaurant if 0.6% of its customers cnnot drive to the restaurant? I suggest the elasticity of demandfor fuel is less than for dining out.

Larry is right, at these prices we will grow more corn.

That said, this is probably a si;;y idea. not as bad as some people make it out, but bad nonetheless.

 
At 8/16/2011 9:26 AM, Blogger VangelV said...

In other words, we still have a lot of land capacity to grow more corn ... wheat... and switchgrass....bio-fuels.

Actually Larry, capacity to grow is not the problem. Net return on energy and economics are of much greater concern. Since most biofuels use more energy as they produce there is no net gain and no move away from fossil fuels. Because biofuels are not economic their production requires subsidies that are extracted from taxpayers and consumers so that the politically connected agricultural companies, ethanol producers, and alternative energy industry insiders can get richer than they otherwise could have in a free market.

But this nonsense will end badly as all similar schemes have. Just ask Al Gore how he made out in his investment in the Chicago Climate Exchange worked out.

 
At 8/16/2011 9:41 AM, Blogger morganovich said...

or ask obama how his now bankrupt investments in solar worked out for that matter.

the federal government has no business picking winners and losers in energy.

when they do make it their business, it invariably does more harm than good.

if, as larry claims, there is all manner of capacity to grow biofuels, why is no one doing so?

because there is no profit nor economic sense in it.

if there were, planting and refining would be growing rapidly.

 
At 8/16/2011 10:45 AM, Blogger juandos said...

Hey larry and hydra, you might find this Technology Review article on biofuels a bit educational: Record Food Prices Linked to Biofuels

Reports from the WTO and USDA show that corn supplies are influenced by biofuel subsidies and mandates

 
At 8/16/2011 10:55 AM, Blogger rjs said...

largely to appeal to the farm vote:

http://en.wikipedia.org/wiki/Energy_Policy_Act_of_2005

 
At 8/16/2011 10:58 AM, Blogger Benjamin said...

Just remember, rural states are not red or blue, but pink.

Imagine if President Obabam announced an "urban liquid fuels" program, and that urban plant waste would be gathered up by inner-city denizens, and converted into ethanol--but that the use of this fuel was mandated, and subsidized.

Everywhere you went, you had 10 percent of the gasoline with Obama's fuel in it.

Imagine the hysteria! The outrage! The pettifogging! The proclamations that the USA was "galloping" into socialism, statism and homo-eroticism (Rick Perry, on that last one).

But you see, this is rural lard, and federal coprolite. That makes it okay.

 
At 8/16/2011 11:09 AM, OpenID thefarmerslife said...

There's a lot more to this than the original post let's on about. It's true that for the first time in history in 2012 more corn will be hauled to ethanol plants than directly used for feed. But if you're going to make an argument either way about corn ethanol you'd better not leave out dried distiller's grains. DDGs are the co-product of corn ethanol production and they are used for livestock feed. It's an efficient form of feed that doesn't contain many of the things the animals can't utilize. This takes the corn use for ethanol rate from 40% down to around a 27% effective rate. In other words, corn that goes to fuel production is not lost to the food system.

The post does have it right that Mother Nature has kept yields a bit low the last few years, which doesn't help the supply situation.

Another big deal concerning corn use stocks is China. Just a few years ago China was an exporter of corn. Now for the last three years, due to changes in diet and average income the Chinese are demanding more corn and are now importers of corn, much of it coming from the US.

Biofuel production is becoming more efficient all the time. New technologies allow for far less water and other inputs in the production of fuel. Second generation biofuels are coming online and algae has huge potential on it's own and it's being incorporate into existing production facilities to make them more efficient and produce even more fuel.

All that being said, I'm not a big subsidy fan either. Also I think we should be producing more of our own energy domestically from petroleum and natural gas. We can power this country ourselves and free us from some of the volatility of certain parts of the world if we do so and put a ton of people to work. Biofuels are a piece of that puzzle.
I wrote my own post about this here. http://thefarmerslife.wordpress.com/2011/04/11/corn-use-food-prices-and-ethanol/

 
At 8/16/2011 11:35 AM, Blogger Paul said...

"Just remember, rural states are not red or blue, but pink."

So you now finally admit all your blathering about "Red State Socialist Empire" was nothing but gibberish all along?

 
At 8/16/2011 12:05 PM, Blogger Benjamin said...

Paul-

I will admit that, if you admit Rick Perry is gay.

 
At 8/16/2011 12:24 PM, Blogger Hydra said...

Juandos:

Everything is linked to everything else, everything is a trade off, and nothing has no bad uninteneded effects.

What else is new? Besides there may be additional causes of record food prices.


Frankly, I'm less concerned about record food prices as I am about farmers getting a reasoanble income for the work and capital they invest. If it takes higher food prices to do that, it is about time.


I think the net energy loss issue has not been resolved, I have seen arguments on both sides. Besides, net energy loss does not mean it is uneconomic.

You could use a coal fired engine to pump oil and use more energy to pump the oil than the oil contained, and yet still sell the oil for a profit.


I think thefarmerslife is mostly correct, except I think we should import all the oil we can: use up other peoples oil first, but keep enough of our supplies in production and development to ramp up efficiently, and use as a stick to keep foreign prices down.

 
At 8/16/2011 1:32 PM, Blogger Che is dead said...

One of the largest recipients of farm subsidies is Warren Buffet, through his holdings in ADM.

If only we could get this rich, leftist prick to pay his "fair share". What was that Treasury web address again?

 
At 8/16/2011 1:36 PM, Blogger Larry G said...

geeze.. lefty's can't take advantage of the same scams that righties can?

you got all these righties blathering about govt spending and people not paying taxes but they suck pretty good on the ethanol subsidies too, right?

or are the Ethanol subsidies another commie plot?

 
At 8/16/2011 1:37 PM, Blogger Che is dead said...

Between 1995-2009, taxpayers shelled out $246.7 billion dollars in agriculture subsidies. Sixty-two percent (62%) of American farmers received no subsidy at all. These no-subsidy farmers and ranchers are primarily small operators grossing under $250,000 a year on their farms. In other words, these are family farmers that fit the idea most Americans have of farmers.

Nationally, ten percent (10%) of "farmers" received 74% of all subsidies, or $183.25 billion of the total $246.7 billion allotted. The bottom eighty percent (80%) of farmers who received a subsidy got on average, $572.00 dollars.

Carroll News

Agricultural products entering the United States face an average tariff rate of 12 percent. We have some of the lowest agricultural tariff rates of any country in the world. Our exports, on the other hand, face average tariffs of 62 percent.

freetrade.org

 
At 8/16/2011 1:39 PM, Blogger juandos said...

"You could use a coal fired engine to pump oil and use more energy to pump the oil than the oil contained, and yet still sell the oil for a profit"...

One could walk on the dark side of the moon naked also hydra but its contraindicated by the physics of the situation...

Same said for pumping up enough oil to pay for the costs of both drilling and the energy needed to pump said crude plus something for the company and its shareholdeders...

If the numbers don't add up with present day technologies then pumping won't happen for a company that wants to maked a profit...

BTW hydra do you remember how slender the profit margin is for oil companies?

Prof. Perry posted a couple of relatively recent items on it:

1) Gasoline Taxes Per Gallon Are Almost 7 Times ExxonMobil's Profit: 48 cents vs. 7 cents for QI

2) Oil Industry Profit Margin Ranks #114 out 215

 
At 8/16/2011 1:49 PM, Blogger Che is dead said...

Two-thirds of all farm subsidies are distributed to the wealthiest 10 percent of farmers. The U.S. Department of Agriculture reports that farmers on “large” and “very large” farms—the types that receive the bulk of the subsidies—report an aver­age household income of more than $135,000. Are these the “poor family farmers” lawmakers are talking about?

It gets worse: 78 farms received over $1 million in subsidies in 2002. The $110 million received by Riceland Foods that year was more than Washing­ton gave to every farmer in 12 states combined. Not to be outdone, a dozen Fortune 500 compa­nies—including John Hancock Mutual Life Insur­ance, Westvaco, Chevron, and Caterpillar—have pocketed farm subsidies as much as 510 times larger than the amount received by the median farmer. Farm subsidy checks are also sent to celeb­rity “hobby farmers” such as David Rockefeller, Ted Turner, Scottie Pippen, and former Enron CEO Ken Lay.

Heritage

Urban parasites getting rich from farm subsidies.

 
At 8/16/2011 1:55 PM, Blogger Larry G said...

does the US import corn and other crops that could be bio-fuel?

what's up with that?

Do we import bio-fuel corn from Canada... Mexico... sugar cane from Brazil..central America,etc?

if you have all this unused jungle in Central America .. and a destitute population.. why not become the ethanol supplier of choice for the US and let us use our own corn for food?

yes.. I realize I've left a butt-load of fertile ground for folks to plow here... so start plowing.

 
At 8/16/2011 1:56 PM, Blogger Che is dead said...

An estimated 90,000 people living in 350 cities and towns across the country got nearly $400 million in taxpayer-funded crop subsidies last year, says a top environmental watchdog group....

“We are sending handouts to Wall Street investors and absentee landlords instead of working toward creating a safety net for working farm and ranch families,” said EWG Senior Vice-President Craig Cox in a statement. “It’s simply unjustifiable.” Cox manages EWG’s agriculture programs from the organization’s Ames, Iowa, office.

The Dept. of Agriculture’s acting undersecretary, Michael Scuse, has reportedly said that people living in urban areas are entitled to crop subsidies if they are active in agriculture.

City Dwellers Got $394 Million in Farm Subsidies, Watchdog Group Says

 
At 8/16/2011 2:41 PM, Blogger VangelV said...

Do we import bio-fuel corn from Canada... Mexico... sugar cane from Brazil..central America,etc?

No dumdum. But you do have to import the fuel to plow the fields, plant the corn, run the pumps, harvest, transport, process, etc. Add it all up and there is a net loss of energy that hurts taxpayers and consumers.

 
At 8/16/2011 7:43 PM, Blogger Craig said...

we still have a lot of land capacity to grow more corn ... wheat... and switchgrass....bio-fuels.

I agree that we probably do, but that land can't simply be put into production with a snap of the finger (or a drop of the plow). It takes capital. Capital that we are in the process of spending to support the government's efforts to inflate the currency and stimulate the economy.

 
At 8/16/2011 10:12 PM, Blogger OBloodyHell said...

>> you can verify this yourself. Just take a drive into any rural area and you'll see the remnants of many, many former forms - usually family farms.. small in size compared to most of the farms now growing corn - in most cases thousands of acres.

The amount of land in question is almost certainly small compared to actual production capacity.

Furthermore -- how certain are you that most, if not all, of the land in question does not lie fallow as a result of "don't farm" payments?

>> In other words, we still have a lot of land capacity to grow more corn ... wheat... and switchgrass....bio-fuels.

Yeah, that's smart. Use modern high-energy farming techniques to produce low-energy yielding biofuels.

Geeeenyus idea, that one.

>> ...and wonder how much bio-ethanol would actually cost if not subsidized.

Ask instead how much corn -- and all the products depending on its price -- would cost if it weren't subsidized.

The only biofuels which make even the slightest rational sense are those based on waste ag products -- corn husks, wheat chaff, and the like. And even those only if they don't have some smarter use to put them to.

 
At 8/16/2011 10:15 PM, Blogger OBloodyHell said...

>> But you see, this is rural lard, and federal coprolite. That makes it okay.

No, it doesn't. It's economically asinine. There's not a single person outside the bought-off political hacks that push this crap that supports it.

 
At 8/16/2011 11:35 PM, Blogger OBloodyHell said...

>>> In other words, corn that goes to fuel production is not lost to the food system.

Right, it's just lost to the starving peoples outside the US.

Good idea.

>>> Biofuels are a piece of that puzzle.
I wrote my own post about this here.


Subsidized biofuels based on anything, or biofuels based on food production, are a waste of money and a crime against humanity.

The politicians who voted for them should be tossed out of office and prevented from running for, or serving in, anything above the county level for the rest of their natural lives.

 
At 8/16/2011 11:37 PM, Blogger OBloodyHell said...

>>> I will admit that, if you admit Rick Perry is gay.

I have no ideas about Perry's sexual preferences, but I am pretty certain of Benny's intellectual capacity being markedly sub-average.

 
At 8/16/2011 11:47 PM, Blogger OBloodyHell said...

>>> Everything is linked to everything else, everything is a trade off, and nothing has no bad uninteneded effects.

LOL, now you're going to cite the Law of Unintended Consequences to us as though we were unaware of it?

BWAAAAAAAhahahahahahahahahahahaaaaa!

You distinctly misstate it, though, in that you seem to imply that all states are equal in their desirability.

Total enslavement does wonders for your need to worry about things. As a slave, you need not worry about food, or drink, or clothing. Nor do you have to worry about finding work, or housing.

See? There are advantages to being a slave. You ready to volunteer to become a slave?

>>> Besides, net energy loss does not mean it is uneconomic.

No, the need for endless subsidies is what means it is uneconomic. Sorta "Duh", but your intellectual prowess seems to be on par with Benny's.

>>> You could use a coal fired engine to pump oil and use more energy to pump the oil than the oil contained, and yet still sell the oil for a profit.

Yes, and then you could hire someone to create a Perpetual Motion machine from the profits!!

Clearly, you don't grasp what PROFIT represents in the whole scheme. Yes, you could sell it for a "profit", but not in the larger scheme of things... that is, not for that long.

What you just described is basically a variety of a Ponzi scheme.

Sorry, Benny, I was wrong: Hydra's intellectual prowess appears to be distinctly below yours. I don't think even you'd be so stupid as to make the above italicized statement.

 
At 8/16/2011 11:50 PM, Blogger OBloodyHell said...

>>> lefty's can't take advantage of the same scams that righties can?

No, lefties -- and righties -- can't take advantage of a scheme that has no business existing in the first place.

It's a clear example of the misuse of government coercion, and a blatant rip off of a substantial segment of the population -- both in the USA and abroad -- committed by certain influential lobbying groups, their supporters, and the low-life bottom-feeding politicos they are appealing to.

 
At 8/16/2011 11:58 PM, Blogger OBloodyHell said...

>>> got nearly $400 million in taxpayer-funded crop subsidies last year

400 stinking million? This is America, not some fourth-world country where piss-ant money like that matters!

Geez, the USA's GDP is $14,290,000,000,000.

400 million is like some guy living on 28k a year worrying about a lost penny.

Ya think there MIGHT be bigger waste in the whole system somewhere? Hmmm?

Dammit, never mind. Let's go find that penny!

 
At 8/17/2011 2:54 PM, Blogger Ron H. said...

"If only we could get this rich, leftist prick to pay his "fair share". What was that Treasury web address again?

*like*

 
At 8/17/2011 3:49 PM, Blogger Ron H. said...

"Besides, net energy loss does not mean it is uneconomic."

Yes it does. You need to think about this some more. That could only be true if there were no cheaper alternatives.

You use more energy charging your phone battery, than your phone gets out of it through usage, but there is no better or cheaper alternative at this time, if you want a mobile phone.

"You could use a coal fired engine to pump oil and use more energy to pump the oil than the oil contained, and yet still sell the oil for a profit."

No you couldn't. Although many oil pumps are now coal fired, so to speak, as they are electric, they don't use more energy than the oil produces. If they did, it would be more profitable to leave the oil in the ground, and apply the coal power directly, rather than including the energy wasting step of pumping oil in the overall process.

You live on a farm, you understand that if you had to put more into raising a crop than you got out of it, you wouldn't do it.

You wouldn't spend $10 to produce $5 worth of gold. It would stay in the ground.

 
At 8/17/2011 3:56 PM, Blogger Ron H. said...

"geeze.. lefty's can't take advantage of the same scams that righties can?"

What is with you, and these labels? You will have more luck thinking logically, and staying on track when yo stick to the issues being discussed. You are distracted to a point that you are missing some of the finer points of the comments here, including the satire employed by Che is Dead.

 
At 8/17/2011 4:02 PM, Blogger Larry G said...

" "Besides, net energy loss does not mean it is uneconomic."

Yes it does. You need to think about this some more. That could only be true if there were no cheaper alternatives."

a pump storage hydro .. is a net loss but it generates power at peak demand and pumps it back at low demand.

electricity generated from natural gas at peak load is 7 times more expensive than coal electricity but it's sold at the same price.


in general I agree that it makes no sense to do that with most things... like fuels....

 
At 8/17/2011 4:48 PM, Blogger Ron H. said...

a pump storage hydro .. is a net loss but it generates power at peak demand and pumps it back at low demand.

electricity generated from natural gas at peak load is 7 times more expensive than coal electricity but it's sold at the same price.

These are the best or cheapest alternatives available in each case, that allow for rapid increases in output.

Without questioning your number 7, which seems high, I'll point out that some customers pay a higher rate per kwh as their usage increases, so those who are causing the need for additional and more expensive power, are in fact paying more for it.

 
At 8/17/2011 4:59 PM, Blogger Ron H. said...

"400 million is like some guy living on 28k a year worrying about a lost penny.

Ya think there MIGHT be bigger waste in the whole system somewhere? Hmmm?

Dammit, never mind. Let's go find that penny!
"

Actually, that's more like some guy living on 28k/yr worrying about a lost dollar. Still not a large amount, but if he feels it's being stolen from him by billionaire rent seekers, it may gain priority in a hurry.

 
At 8/17/2011 5:13 PM, Blogger Ron H. said...

Some of the vacant farm land may be, as OBH points out, a result of "don't farm" payments, which are as asinine as subsidy payments, especially if they are paid to the same entity.

Without senseless government manipulations like this, vacant land would be put in production when it was profitable to do so, and taken out when it was not. If left to individual owners of the property, who seek to maximize profit, this would result in relatively stable prices.

Apparently nothing was learned from such harmful government price control policies during the 1930s.

 
At 8/18/2011 11:58 AM, OpenID thefarmerslife said...

BloodyHell, just to clarify. I did say I think that the subsidies need to be phased out. The industry needs to survive on its own. Let the consumer vote for it or agaisnt with their dollars. Also keep in mind that farmers like myself definitely don't receive and even the ethanol plants that take in the corn may not receive the Volumetric Ethanol Excise Tax Credit. That credit goes to the blender who mixes it with gas to make a blended fuel. That means that even an oil company could be getting that money.

I also think we are at a very early stage still with biofuels. I also don't think grain-based ethanol is going to be the future, but it is a stepping stone. I think algae is going to be where it's at.

A couple other points. Except for what finds its way into some processed foods and sweetner products people do not eat the corn you see growing in all these fields. Livestock consumes this corn, and they still consume the DDGs the come out of the ethanol plants. This year there are already plants setting up to take other forms of biomass like corn stover and algae reactors are even being set up to turn the waste of these plants into even more energy.

There are about 10M acres of farmland in conservation reserve programs. We still export corn and grow 50% of the world's production so there isn't a shortage, but for commodity marketers there are tight carry over stocks right now which isn't helping prices. They are high and have been for a while, but they most certainly will come down again.

 
At 8/18/2011 1:42 PM, Blogger Ron H. said...

thefarmerslife

"I also think we are at a very early stage still with biofuels. I also don't think grain-based ethanol is going to be the future, but it is a stepping stone. I think algae is going to be where it's at."

Your views on the future of biofuels may be overly optimistic. Without getting into a lot of detail, I would like to point out several problems I see.

The main one is economic. Why would anyone believe that the best fuels, or for that matter the best anything, can be determined by government mandate and subsidies from taxpayers? In the past, this type of statist thinking resulted in millions of lives lost in countries like China and the former Soviet Union. Central planning just doesn't work.

Another problem, also economic, is that these mandates and subsidies provide rich opportunities for rent seekers to enter a lucrative field, and paint bright, optimistic pictures of the future by stretching estimates to the point of fantasy, and ignoring unpleasant realities like scale.

I believe that if and when the gravy is withdrawn, many of these people, and the endeavors they promote will fade away.

You didn't explain why you think algae will be the future, but everything I've read about it seems to be overly optimistic, and impossible on the scale necessary to be a realistic source of fuel.

On the subject of DDG, I've yet to find a good explanation of how animal feed can take a detour to an ethanol plant, where massive amounts of fuel value is removed from it, then continue it's journey to the animals as if nothing has been lost. Perhaps only a small fraction of the original feed value of the corn actually continues on as animal feed.

"There are about 10M acres of farmland in conservation reserve programs. We still export corn and grow 50% of the world's production so there isn't a shortage, but for commodity marketers there are tight carry over stocks right now which isn't helping prices. They are high and have been for a while, but they most certainly will come down again."

Demand is increasing faster than supply, causing what I would call a shortage. If you don't believe this is the case, you need another explanation for why prices are high.

 
At 8/18/2012 9:12 AM, Blogger mikeishere1st said...

The whole idea of mandating bio-fuel is to starve out the third world. Rich countries will BUY the food right out of a starving third world babies' mouths to burn it in their machines. Families in those poor countries can spend 50 to 100% of their income on food alone; doubling the price will kill many of them. It's the progressive's "final solution" to third world over-population and poverty. It also insures that they are prevented from developing their own fossil fuel resources. Banning the use of DDT was their first idea to kill off the third world but they misjudged the impact because malaria doesn't generally kill many people - it just makes them sick and everyone else a lot poorer forcing them to have even more babies to try to have enough people around to take care of the sick.

If biofuel isn't evil then evil has no meaning. They launched the mandate under the guise of stopping 'man-made global warming' which is a complete hoax and bio-fuel does little or nothing to reduce NET CO2 emission anyway. Then they tried to morph their lie over to 'energy independence' saying we do not have enough fossil fuel to sustain ourselves. It's just another LIE, we are swimming in natural gas and coal reserves good for at least another 200 years. The solution to the problem of over population and poverty in the 3rd world is very simple - FREEDOM! Free market capitalism in a democratic society is the ONLY way to produce a surplus to accumulate wealth. Wealth STABILIZES population as it has for every rich country on the planet. Wealth also then affords ecology for such things as clean air and water, forest management, etc. - just like we have.

Atheist/socialists are destroying our planet and bent on genocide of the third world - stop them.

 

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