What Ever Happened To Ethanol?

Ahh, ethanol boom - we hardly knew ya.

1,100 Gallons per Gallon!

A study on bio fuels and water published by the Institute for Agriculture and Trade Policy (IATP) provides the following estimate:

For Iowa, in the heart of corn production in the U.S., the water use (associated with crop water requirement) for producing a gallon of ethanol has been calculated to be between 1081 and 1121 gallons of water. However in fully irrigated agriculture, crop water use increases substantially.

For example for corn grown in Southwestern part of Nebraska, where it is irrigated, the average water use (associated with crop water requirement) for producing a gallon of ethanol has been estimated to be about 1568 gallons of water.

Agflation And The End Of Cheap Food

This from the 12-06-2007 print edition of "The Economist":

Rising food prices are a threat to many; they also present the world with an enormous opportunity

FOR as long as most people can remember, food has been getting cheaper and farming has been in decline. In 1974-2005 food prices on world markets fell by three-quarters in real terms. Food today is so cheap that the West is battling gluttony even as it scrapes piles of half-eaten leftovers into the bin.

That is why this year's price rise has been so extraordinary. Since the spring, wheat prices have doubled and almost every crop under the sun—maize, milk, oilseeds, you name it—is at or near a peak in nominal terms. The Economist's food-price index is higher today than at any time since it was created in 1845 (see chart). Even in real terms, prices have jumped by 75% since 2005. No doubt farmers will meet higher prices with investment and more production, but dearer food is likely to persist for years (see article). That is because “agflation” is underpinned by long-running changes in diet that accompany the growing wealth of emerging economies—the Chinese consumer who ate 20kg (44lb) of meat in 1985 will scoff over 50kg of the stuff this year. That in turn pushes up demand for grain: it takes 8kg of grain to produce one of beef.

But the rise in prices is also the self-inflicted result of America's reckless ethanol subsidies. This year biofuels will take a third of America's (record) maize harvest. That affects food markets directly: fill up an SUV's fuel tank with ethanol and you have used enough maize to feed a person for a year. And it affects them indirectly, as farmers switch to maize from other crops. The 30m tonnes of extra maize going to ethanol this year amounts to half the fall in the world's overall grain stocks.

Dearer food has the capacity to do enormous good and enormous harm. It will hurt urban consumers, especially in poor countries, by increasing the price of what is already the most expensive item in their household budgets. It will benefit farmers and agricultural communities by increasing the rewards of their labour; in many poor rural places it will boost the most important source of jobs and economic growth.

Although the cost of food is determined by fundamental patterns of demand and supply, the balance between good and ill also depends in part on governments. If politicians do nothing, or the wrong things, the world faces more misery, especially among the urban poor. If they get policy right, they can help increase the wealth of the poorest nations, aid the rural poor, rescue farming from subsidies and neglect—and minimise the harm to the slum-dwellers and landless labourers. So far, the auguries look gloomy.

In the trough

That, at least, is the lesson of half a century of food policy. Whatever the supposed threat—the lack of food security, rural poverty, environmental stewardship—the world seems to have only one solution: government intervention. Most of the subsidies and trade barriers have come at a huge cost. The trillions of dollars spent supporting farmers in rich countries have led to higher taxes, worse food, intensively farmed monocultures, overproduction and world prices that wreck the lives of poor farmers in the emerging markets. And for what? Despite the help, plenty of Western farmers have been beset by poverty. Increasing productivity means you need fewer farmers, which steadily drives the least efficient off the land. Even a vast subsidy cannot reverse that.

With agflation, policy has reached a new level of self-parody. Take America's supposedly verdant ethanol subsidies. It is not just that they are supporting a relatively dirty version of ethanol (far better to import Brazil's sugar-based liquor); they are also offsetting older grain subsidies that lowered prices by encouraging overproduction. Intervention multiplies like lies. Now countries such as Russia and Venezuela have imposed price controls—an aid to consumers—to offset America's aid to ethanol producers. Meanwhile, high grain prices are persuading people to clear forests to plant more maize.

Dearer food is a chance to break this dizzying cycle. Higher market prices make it possible to reduce subsidies without hurting incomes. A farm bill is now going through America's Congress. The European Union has promised a root-and-branch review (not yet reform) of its farm-support scheme. The reforms of the past few decades have, in fact, grappled with the rich world's farm programmes—but only timidly. Now comes the chance for politicians to show that they are serious when they say they want to put agriculture right.

Cutting rich-world subsidies and trade barriers would help taxpayers; it could revive the stalled Doha round of world trade talks, boosting the world economy; and, most important, it would directly help many of the world's poor. In terms of economic policy, it is hard to think of a greater good.

Where government help is really needed

Three-quarters of the world's poor live in rural areas. The depressed world prices created by farm policies over the past few decades have had a devastating effect. There has been a long-term fall in investment in farming and the things that sustain it, such as irrigation. The share of public spending going to agriculture in developing countries has fallen by half since 1980. Poor countries that used to export food now import it.

Reducing subsidies in the West would help reverse this. The World Bank reckons that if you free up agricultural trade, the prices of things poor countries specialise in (like cotton) would rise and developing countries would capture the gains by increasing exports. And because farming accounts for two-thirds of jobs in the poorest countries, it is the most important contributor to the early stages of economic growth. According to the World Bank, the really poor get three times as much extra income from an increase in farm productivity as from the same gain in industry or services. In the long term, thriving farms and open markets provide a secure food supply.

However, there is an obvious catch—and one that justifies government help. High prices have a mixed impact on poverty: they hurt anyone who loses more from dear food than he gains from a higher income. And that means over a billion urban consumers (and some landless labourers), many of whom are politically influential in poor countries. Given the speed of this year's food-price rises, governments in emerging markets have no alternative but to try to soften the blow.

Where they can, these governments should subsidise the incomes of the poor, rather than food itself, because that minimises price distortions. Where food subsidies are unavoidable, they should be temporary and targeted on the poor. So far, most government interventions in the poor world have failed these tests: politicians who seem to think cheap food part of the natural order of things have slapped on price controls and export restraints, which hurt farmers and will almost certainly fail.

Over the past few years, a sense has grown that the rich are hogging the world's wealth. In poor countries, widening income inequality takes the form of a gap between city and country: incomes have been rising faster for urban dwellers than for rural ones. If handled properly, dearer food is a once-in-a-generation chance to narrow income disparities and to wean rich farmers from subsidies and help poor ones. The ultimate reward, though, is not merely theirs: it is to make the world richer and fairer.

The emphases are ours.

So go ahead and chow down and fill up with E85 on the way.
It'll only hurt when you laugh.

Nebraska: 40% Of Corn Crop Goes To Ethanol

Apparently, Nebraska is sending a lot of food to be burned.

Nebraska is the third ranked state with regard to corn production in the U.S, and second in the production of ethanol.

With three new plants added in November, annual corn demand for ethanol production in Nebraska passed the 500-million-bushel mark for the first time, using 37% of Nebraska's corn.

Ethanol Running Out Of Gas?

Several wire service articles and "local" papers have run pieces similar to this one from the PJS:
"Ethanol-fueled boom losing steam"

One of the most telling items was this from Chet Perry, president and CEO of Barrington-based ITEC Refining and Marketing:

"Everybody, in my opinion, is holding out to see what comes out of Washington in the next energy bill and the next farm bill," he said. "I know a lot of people in the industry would call me a Judas for saying this, but as long as you have mandates, it's a license to steal."

Indeed. Ain't government market intervention wonderful?

The Ethanol's coming, The Ethanol's coming!

The Daily Pantagraph reports Greg Jackson and Kyle Ham believe at least one ethanol production facility is in Woodford County's near future.

The interests here in the County being what they are we seriously doubt that there will be much media coverage of some of the rather unpleasant facts attending the ethanol boom. That leaves us with the job and placing the bulls-eye directly on our back.

First off, if ethanol is a way to fight foreign oil dependence, why the heck is there a tariff on Brazilian ethanol and not on Saudi oil? Just a question.

Alright then, let's see 4 up to 70 jobs created! (We wonder if that range could be pinned down a bit better.) Higher prices for grain! Higher property values! Decreased dependence on oil!

The first person to say it's "win-win" may just get slapped.

Let's take the last first. Without going nuts on the numbers, suffice it to say they just don't add up. According to the USDA's latest figures the fossil fuel input is almost equal to the ethanol output! On top of this, of course are the huge corn subsidies, the 51 cent per gallon direct subsidy (not the net ethanol, but rather the gross which is mostly recycled fossil fuels). Granted - there are huge oil and gas subsidies as well. That's worked out real well for us, hasn't it?

Now for no extra charge, you get huge demands on water tables and higher food prices with reduced corn exports. This is all presumably to replace a minuscule percentage of our national oil and gas consumption.

That's not to say this would not be good to some farmers, ethanol producers, and ag conglomerates because it will. Perhaps there even would be a financial windfall for the County Government.

Most commodities folks we know say if you haven't already invested in your ethanol plant, you probably shouldn't, because corn-based ethanol will only last 5 years or so and then the plants will be converted to other biomass like grass, cellulose, etc.

At any rate - here's the uncomfortable question:

Why on earth would we want to turn agriculture on its head in this way for what all the world looks to be a short term profit? Why have we embarked on such a dangerous public policy initiative? Every time the government gets involved in the markets it mucks them up.

We realize that Woodford County is going to ride this wave. We just hope the local effects justify the state and national policies, and no one falls off the surf board.

Ethanol Source Switch To Switchgrass?

The U.S. government gives refineries a tax incentive or subsidy of 51 cents for each gallon of ethanol they blend with gasoline.

Last week President George W. Bush said Congress should drop a 54 cent-per-gallon tariff on ethanol imports from Brazil.

The Brazilians say they will be "energy independent" next year, although their fuel usage is miniscule compared to the U.S. Brazil, and much of the rest of the world, process sugar cane and switchgrass for bio fuels.

Demand for ethanol may someday outpace the ability of U.S. farmers to produce corn (the year 2025 is bandied about). Sugar growers have enjoyed Federal protection and largesse since the hay-days in Cuba. This new vision is one of a nation dependent on switchgrass as the key feed for ethanol production.

It takes about 6 to 8 years to develop the switchgrass enzyme conversion technology sufficient for ethanol production plant practicability, according to our sources.

O.K. So here's the question - do we want to eliminate the (primarily) Brazilian tariff, or do we want to continue subsidizing domestic production with the tariff in addition to all of the other ethanol/sugar incentives and mandates?

In this corner . . . A.D.M,

In this corner . . . Cargill . . .

we'll let you figure out who is whom in the ring and why.