America's Corn Hole

Most Americans have noticed that the price of gasoline at the pump has started to rise again. Gasoline prices have surged 30 cents since mid-July and now average $3.70 a gallon, higher than year-ago levels in 39 states. While some sources have blamed the recent refinery fire in California and others a rise in crude oil prices there is one hidden source of increasing fuel costs few are willing to mention—ethanol. Mandated by Congress to make up 10% of automotive gasoline, ethanol made from corn accounts for a quarter of recent fuel price increases while at the same time contributing to rising food costs and shortages world wide. Not satisfied with this astounding government largess, an unnatural alliance of eco-activists and big agribusiness is lobbying to raise the mandate to 15%. It is time for this blatant government kickback to end.

In an amazing display of governmental incompetence, the US, which has suffered from wildly fluctuating gas prices in the past, has managed to link its domestic fuel costs to the vagaries of agriculture. Prices are once again heading toward the magic $4 per gallon mark, beyond which consumers radically curtail travel and leisure activities. With the current feeble economic recovery hanging by a thread, the last thing the nation needs is for consumers to hunker down and stop spending. Acoording to the US Energy Information Agency (EIA), prices likely to continue climbing through August, with no relief insight until after Labor Day.

Few appreciate the impact on consumer prices caused by the draconian 10% per gallon ethanol mandate passed by the US Congress under the guise of promoting “green energy.” Intended by disingenuous Congress cretins as a sop to their buddies in Big Agra, the mandate was aimed directly at guarantying demand for domestic corn (maize for those of you outside the US). It has been so successful that fully 40% of the US crop now goes into the nation's gas tanks. Ethanol adds significantly to gas prices at the pump and, more perniciously, adds to increasing food prices at home and abroad.

The US Agriculture Department (USDA), in its most recent assessment, found that corn yields are at their lowest since 1995, downgrading its 2012 corn forecast by 13% from last year's crop, to 10.8 billion bushels. This comes at a time when the whole world faces shortages of maize, wheat, and soybeans. This is partly because Russia and Kazakhstan are also suffering drought conditions that are affecting their respective wheat crops, but the US is a major exporter and a bad American crop has repercussions around the world. This has led to a number of calls for the repeal of the US ethanol mandate, like this one in a Wall Street Journal editorial:

In 2007 and 2008, food prices spiked, resulting in much higher U.S. grocery bills and far more hunger in the poorest countries as the global supply chain buckled. The world may now be on the cusp of a 2012 reprise amid the drought in the Midwest farm belt, the worst in 50 years. Luckily, there are plenty of simple, modest things Washington can do to alleviate and even prevent another crisis.

The problem is that these fixes are opposed by a minor industry that adds little if any value to the economy, even counting its prodigious Beltway operations. Yup, the ethanol lobby strikes again. It can't succeed without a mandate that forces consumers to buy its product every time they fill up the tank, and if the resulting corn shortages drive food prices up in a way that punishes consumers around the world, so be it.

The USDA's world agricultural outlook board estimated that global corn consumption will be off by 38.9 million tons, with US problems responsible for three-fourths of the shortfall. The US market is important because the US accounts for 60% of global exports. Corn feeds cows, pigs and chickens and is also a key ingredient in all kinds of foods (sometimes it seems that corn syrup is in everything). The shortage has already driven corn futures up 50% .

The situation is serious enough for organizations like the UN Food and Agriculture Organization (FAO) to call for suspension of corn ethanol subsidies. “Remove provisions of current national policies that subsidize (or mandate) biofuels production or consumption,” advised the FAO and ten other international organizations. The response of US ethanol lobby? The Renewable Fuels Association trade group put out a statement fatuously claiming that there's no danger of an ethanol shortage and urging an expansion of the mandate to require a 15% blend.

The US is having its worst corn harvest in 15 years.

“Corn is also a key ingredient in the combine of political power and corporate welfare that is U.S. alternative energy policy,” states the WSJ editorial. The food-to-fuel mandate is known as the Renewable Fuels Standard (RFS) and it requires 13.2 billion gallons of ethanol to be blended into the gasoline supply this year, rising 36 billion gallons by 2022. Amazingly, greens no longer support corn based ethanol as an alternative fuel and the mandate would probably have been repealed long ago if not for corn-belt politics. This is because, ethanol lobby propoganda aside, corn ethanol is more expensive than gasoline. Consider the following analysis by Michael Economides:

The total crop used for corn-based ethanol in 2010 was about 4.77 billion bushels and 13.2 billion gallons of ethanol were produced. This means 2.77 gallons of ethanol are produced from each bushel of corn. This is a widely accepted number in the industry. At the current corn price of around $7.00 per bushel, just the corn feedstock cost for corn-based ethanol should be about $2.53 per gallon. On an equivalent energy basis, the cost of the corn feedstock for corn-based ethanol is $3.80 per gallon of gasoline. This doesn’t include the cost of production of the ethanol, the cost of transportation, or any other cost besides the corn. When the other costs are added in, corn based ethanol is a money losing proposition.

This calculation is without the $0.54 per gallon blending credit, the direct subsidy from the federal government. That plus corn futures hit a record high July 31 of $8.20 per bushel on the Chicago Board of Trade. If that is not enough to convince you that gas is cheaper than ethanol consider the cost of E85, a mix of 85% ethanol and 15% gas that is used by “flex-fuel” vehicles. If ethanol is truly less expensive than gas one would expect E85 to be significantly cheaper than normal pump gas, which is only 10% ethanol. As is clearly shown in the DOE chart below, E85 is significantly more costly than gasoline, taking ethanol's lower energy content into consideration. As a fuel, corn alcohol sucks.

As average Americans reap the rotting harvest of their elected officials' ineptitude other parts of the government machinery grind on. The US Geological Survey announced a new report about the nations oil and natural gas reserves, “Assessment of Potential Additions to Conventional Oil and Gas Resources in Discovered Fields of the United States from Reserve Growth, 2012.” According to the USGS, America's technically recoverable fossil fuel reserves expanded by 32 billion barrels of crude oil, 291 trillion cubic feet of natural gas, and 10 billion barrels of natural gas liquids. The amounts represent about 10% growth in the overall US oil and gas endowment, and do not include reserve growth estimates for federal offshore areas, the report said.

Even with the US in a deep energy hole, gas prices were evidently not unstable enough for the idiots in Washington. Being dependent on imports with major sources and supply routes located in many of the world's most troubled regions should provide enough excitement but no, politicians have managed to add an even more capricious variable to the mix: the yearly corn harvest and, by inference, the weather. The WSJ summed things up nicely: “Natural disasters can't be controlled. Ethanol is a man-made disaster that could be stopped if the EPA or others in Washington cared for human health as much as they do power politics.” Amen.

So welcome to the corn hole. Experts are predicting that gas prices could go up another 20 cents per gallon before the end of summer, and the rising cost of automotive fuel threatens to become a national campaign issue. Remember this example of weapons grade stupidity as we enter the final stretch of the US presidential campaign. Do either of the candidates have the clarity of thought—or the courage—to advocate removing the mandate? Don't hold your breath.

Be safe, enjoy the interglacial and stay skeptical.

Ethanol in Gas

The damage done to your gasoline engines and the taxes you pay and the money paid to ethanol carpet baggers is NOT worth the supposed earth atomoshere cleaning or prollution reduction. It's all a scam with our money.

Just a guess

I'm just spitballin' here but I think you may not care for ethanol much, Doug :-)

I like it just fine

I like ethanol just fine—in beer, wine and liquor where it belongs.