Ethanol: Are We Up the (Swollen) Creek?
By grforbes Posted in Energy — Comments (5) / Email this page » / Leave a comment »
A serious reality of ethanol has come to the fore - natural disasters!
The ethanol industry is facing its greatest challenge as corn supplies are threatened by the extensive flooding across the Midwest. U.S. ethanol production relies upon Iowa corn (and Illinois corn, and Indiana corn, etc.) and when it is threatened the ethanol industry is threatened.
The U.S. is all but guaranteed to have a lower than originally projected corn yield in 2008 due to severe flooding. The USDA recently lowered the expected yield by more than three percent (390 million bushels), which will drive the price of corn higher. 2008 prices are expected to be $1.25 per bushel higher than 2007 and $2.76 more than in 2006. That translates into a nearly 91 percent increase in corn prices over the two year period. This increase is expected to have wide-ranging impact, from driving up the price of meat and other grocery items, to increasing the costs of gasoline.
The increased price for corn will increase the family grocery bill as corn is an ingredient in everything from breakfast cereal to soft drinks. Corn is also essential to the livestock industry. Livestock producers are expected to cut back on production due to the increased costs of feed resulting in reduced supply and higher prices. And, of course, corn will impact the costs to produce ethanol ultimately increasing the price of gas.
John Roach, commodity analyst and owner of Roach Ag Marketing, appeared on WHO radio's The Big Show on June 12, 2008 to discuss the impact of the flooding on the corn market. He explained that ethanol production is generally borderline profitable. However, with this years expected increase of corn prices and decrease of supplies, it will be very difficult for producers to remain profitable. This will jeopardize corn ethanol production.
When you pin your liquid fuel production to an agricultural commodity, it should be expected that natural disasters, whether due to drought, insects, or floods, will disrupt its supply. Heavy reliance on crop based bio-fuels could put our energy security at risk. Grassley Watch will not argue here that ethanol should be abandoned, but that it should not be relied upon as s significant source of energy.
A tight ethanol market will make it difficult for the U.S. to meet its renewable fuels standard (ethanol mandate). Senator Hutchison introduced a bill last month that would freeze the ethanol mandate at current levels. While Midwestern flooding is not the motivation behind this bill, if signed into law, it would reduce the pressure on the corn and ethanol markets potentially helping to mitigate price increases on both. Pressure could also be reduced by eliminating the current ethanol import tariff. A bill introduced recently by Senator Feinstein would not eliminate the tariff, but would reduce it to keep pace with ethanol subsidies. By reducing or eliminating the tariff, ethanol would be able to be purchased at lower cost on the international market potentially lowing the price of ethanol and gasoline. Senator Grassley opposes both measures.
Mr. Grassley has said that "floods happen. God rules. We don't have any control over it." Yet, he also proclaims that it is not fair that the flooding will intensify criticism of the ethanol industry. Why is it not fair, Senator? You have long proclaimed that ethanol was an important component to providing the country with energy security. But now that nature has shown the vulnerability of the ethanol market, are you not willing to admit that reliance on this product will increase our energy insecurity?
The anticipated decrease in corn yield, the ethanol import tariff, high food prices, and increased international demand for the U.S. corn crop, have created the "perfect storm" for ethanol. It is now important that lawmakers have a very pointed conversation about the benefits and costs of utilizing ethanol as a significant fuel source and its place in our energy policy. If there is a silver lining to these floods it may be that we will finally be forced to have this conversation.
Greg Forbes
Editor, grassleywatch.com
Originally posted 06/13/2008 at Grassley Watch
and lift the tariffs on foreign sugar and foreign ethanol. If ethanol is truly the right solution to our oil shortages, then the free market will find the best supply at the best price. Forcing American taxpayers to pay midwest agribusiness giants for a fuel that is not economically efficient.
Surely you didn't think it had anything to do with energy independence did you?
By the way you know who is primarily responsible for creating the entire ethanol boondoggle in the first place?
Bob Dole, that's right, Mr. Staunch Republican, who of course hailed from a farm state.
Until our own party actually begins to believe and act like we want smaller government, there is no chance to get anything done.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
There is not one politician in the midwest of either party who will back a repeal of the subsidies.
In Oklahoma, we have passed a law that any gas stations using Ethanol must show which pumps (via a sticker) contain ethanol.
There are already calls to NOT buy gas from those stations.
I hope the public outcry of dislike for the ENTIRE ethanol system (from its subsidized beginnings to its lowered mileage and engine wear endings) that is coming from my state will serve as a reminder that while BOTH sides of our government have called for effective changes to eliminate our dependence on foreign oil since the Carter Administration, our government has failed us by doing nothing about it except failing time and time again.
The President's approval rating is below 30%. Congress' is below 20.
There is a reason.
Rather than whining about a problem, Politicians, in hopes of getting votes.... fix a problem, or get out of the way.
Given the Government's history of 'fixing' problems, I prefer the latter.
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Dependence is Slavery.
As best I can tell (from out here in DC), those guys who didn't get corn in because it is too wet must plant beans this year. Planting even last week would ensure that the crop is killed by frost.
I know that SE Iowa was hit pretty hard and just about any field with a creek near it suffered some loss.
Also, I like your blog. Senator Grassley is one of the good guys, but has seemed to chart his own course over the past couple of years.