Posts Tagged ‘government subsidies for corn ethanol’


Nigel Hunt of Reuters reports that

Corn prices rose to record highs on Monday and looked set to climb further as torrential rains threatened to reduce further U.S. crop prospects in a market already facing tight supplies and surging demand.

Strong demand for corn from U.S. biofuel producers has contributed to supply tightness in the corn market. The U.S. Department of Agriculture has forecast about a third of this year’s crop will be consumed by the biofuel sector.

“I am still very bullish. I think $7, $8, $9 corn is well within reach,” said Commerzbank analyst Edward Hands.

Unfortunately, the combination of a foolish corn ethanol program with rising gas prices and rising transportation costs are all conspiring to drive up the price of food. With the additional effects of the recent heavy storms and rain in the Midwest, including flooding in some areas and frequent tornadoes, corn prices are skyrocketing. One simple action that should be taken immediately is to halt all corn ethanol subsidies and programs, so that food and fuel are no longer in competition with each other.

Original text copyrighted © 2008 James K. Bashkin

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Addendum. Devastated US corn crop sends ethanol producer shares into freefall.” The Associated Press reported the following financial news:

The values of ethanol producers hemorrhaged Thursday as the price of their key feedstock, corn, climbed to record levels because U.S. floods have devasted this year’s crop.

“In the last 10 days the world has changed in the corn market with massive flooding causing irreparable damage to this year’s crop and pushing corn prices up $1 over this time frame,” Citi Investment Research analyst David C. Driscoll wrote in a client note.

“As a result of this unprecedented weather event which has happened only twice in the last 25 years, ethanol margins have plummeted over the same ten day time span with small and mid size ethanol producers now running at substantial losses against cash costs.”

He expects such small and mid-sized producers to halt operations.

Unfortunately, these financial and farming problems will increase food prices in the near term, but they may help lower food prices in future growing seasons, as long as the corn ethanol producers stay shut down. Repeal of the tax credits for corn ethanol would help keep corn ethanol from once again driving food prices up.

Original text copyrighted © 2008 James K. Bashkin

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“Biofuels are fast becoming a new flash point in global diplomacy, putting pressure on Western politicians to reconsider their policies.”

Note that free registration at the NYT may be necessary to see this article at the “read more” link. Nevertheless, this New York Times article needs to be read! This is true even though the article sounds more like it was written by a politician than I would have expected, giving ample space what I would call the self-serving justifications offered by Congressmen and Federal officials. The tone of the NYT article contrasts with the stronger conclusions reached in the Chicago Tribune about the growing price of eggs, where the blame is laid squarely on high corn prices (you may have to register for a free account to see this article, also). I have been writing about the topic of the unfortunate conflict between food and fuel since approximately September (not that the idea was original to me, there was plenty of documentation available!).

I don’t condemn all biofuels, and I support biodiesel made from waste vegetable oil, fish oil or other waste products as a reasonable approach, if one must have a liquid, carbon-based fuel. It is certainly clear that liquid fuels will not be disappearing overnight. However, I do not support placing food crops in competition with energy needs. In my opinion, the time of electric cars should be and is approaching, as hybrids become more popular, plug-in hybrids are near to reaching mainstream showrooms, and battery technology continues to improve, making already-available, purely electric cars even more affordable. We should be making investments in these technologies and related clean energy programs (solar, wind, geothermal), not pouring tax dollars down the drain with ethanol subsidies that have no effect whatsoever on oil and gas prices (this much is obvious, regardless of your opinion how corn ethanol and other biofuels affect food prices). The Economist was also firm in its criticism of corn ethanol programs, as reported here earlier.

Please see my recent post about the discoveries of improved Lithium ion batteries from Argonne National Labs and my post about electric cars, hybrids and plug-in hybrids. Many other related articles are published here as well.

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© James K. Bashkin, 2008


A Grist special series on biofuelsSee HIGHLIGHT Health for an excellent discussion of the increased health risks associated with bioethanol as automobile fuel. Walter at HIGHLIGHT Health gives references to several articles and discusses both a predictive model for future air quality and the actual air quality in Brazil, where cars running on 100% ethanol have been around for some time.

© James K. Bashkin, 2007

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