Is Corn Getting too Expensive?
You don't have to own an ethanol stock to know that the media and the
people who believe what they have to say have become apoplectic in
their disdain for ethanol over the past year. Many pundits are
parroting each other and blaming ethanol as the root cause for rising
food prices and worldwide food shortages. They do this with such
conviction that you'd think they must spend their free time collecting
bushels of corn to donate to starving people of the world when they are
not pontificating on the topic. There's only one problem with their
assertions: They are 100% wrong.
Rising food prices are the result of rising energy costs. It's May in
Colorado, yet I can get nearly any kind of fruit or vegetable I can
imagine at the supermarket, but they are not cheap by historical
standards. Since none of these products are in season locally, it
means that most of them have to be transported from far away, in some
cases, from half way around the world. Your neighborhood supermarket
is probably similar. A large portion of the cost of food depends on
the energy it takes to produce, harvest, preserve, and transport it. I
should also note that none of these fruits or vegetables use corn as an
ingredient, nor do they compete with corn for the land on which they
are grown.
If you bought your corn by the bushel at the now seizure-inducing $6/bushel price, it would still be less than half of corn's inflation-adjusted historical high price. Yet at this price, it would only require about $40 of corn to completely sustain a person for a year, assuming he could stand the monotony of eating it for every meal. I know I'm being simplistic here, because most of the corn grown in the U.S. is used for animal feed which effectively multiplies its cost to consumers. It takes somewhere between 6 to 30 lbs. of corn to put 1 lb of meat on the table. But still, even if you ate an insane diet of 100% meat and the animals you ate had their own luxurious diet that was made up of 100% corn, you'd still only use about $1.20 a day in corn to satisfy your caloric needs. Even a box of corn flakes cereal contains less than $.10 worth of corn in a box that sells for $3.00. Imagine that, a product that is made from corn has less than 3% of its cost attributable to its main ingredient. So you'd have to be pretty bad at math to blame high food prices on high corn prices. The recent growth of the ethanol industry is not the cause, but rather the result, of rising energy prices.
Corn is cheaper than firewood. If you could eat and digest wood like a
termite, it would still be less costly to eat corn. You may think I'm
making this up, but the data speaks for itself.
Corn has been so cheap for so long that we've had to create a welfare system for farmers to help prevent their farmland from being converted into strip malls. Taxpayers spend nearly $2 billion per year on a program to pay farmers not to grow crops on more than 30 million acres of arable land in the U.S.. Maybe what the American farmer needs isn't more money not to grow food, but a price for his efforts that will get him off the public dole. Directing a portion of corn production to ethanol helps to provide that price.
Instead of fretting over the $.51/gallon subsidy on ethanol, which curiously goes to the gasoline blenders, i.e., the oil companies, it may not be long before unsubsidized ethanol becomes economically competitive as U.S. gas prices rise toward $4.00/gallon, a price that people in Europe would still consider laughably inexpensive. Most Europeans pay more than $8/gallon for their gas.
No mention of ethanol is complete without addressing the 'holy grail' of ethanol: Ethanol made from cellulosic waste. Unfortunately, in order to get investment in cellulosic ethanol production and make it cost competitive with corn ethanol, we first need an industry that demonstrates a long term demand for it, which can only be done by producing more flexfuel vehicles that run on an E85 blend and more stations selling it. So we have a chicken and egg scenario because demand for flexfuel cars is dependent on cost and availability of E85 fuel which today can only be produced by corn in the U.S..
When uninformed pundits take every opportunity to vilify ethanol as some sort of scam, it induces fear and uncertainty and has the potential to derail an industry as it takes its first few tentative steps forward. I know that petroleum companies wouldn't mind if that happened, but it's hard to imagine the motives behind everyone else who is trash talking ethanol, some of whom are self-proclaimed environmentalists.
If you bought your corn by the bushel at the now seizure-inducing $6/bushel price, it would still be less than half of corn's inflation-adjusted historical high price. Yet at this price, it would only require about $40 of corn to completely sustain a person for a year, assuming he could stand the monotony of eating it for every meal. I know I'm being simplistic here, because most of the corn grown in the U.S. is used for animal feed which effectively multiplies its cost to consumers. It takes somewhere between 6 to 30 lbs. of corn to put 1 lb of meat on the table. But still, even if you ate an insane diet of 100% meat and the animals you ate had their own luxurious diet that was made up of 100% corn, you'd still only use about $1.20 a day in corn to satisfy your caloric needs. Even a box of corn flakes cereal contains less than $.10 worth of corn in a box that sells for $3.00. Imagine that, a product that is made from corn has less than 3% of its cost attributable to its main ingredient. So you'd have to be pretty bad at math to blame high food prices on high corn prices. The recent growth of the ethanol industry is not the cause, but rather the result, of rising energy prices.
Corn is cheaper than firewood. If you could eat and digest wood like a
termite, it would still be less costly to eat corn. You may think I'm
making this up, but the data speaks for itself.Corn has been so cheap for so long that we've had to create a welfare system for farmers to help prevent their farmland from being converted into strip malls. Taxpayers spend nearly $2 billion per year on a program to pay farmers not to grow crops on more than 30 million acres of arable land in the U.S.. Maybe what the American farmer needs isn't more money not to grow food, but a price for his efforts that will get him off the public dole. Directing a portion of corn production to ethanol helps to provide that price.
Instead of fretting over the $.51/gallon subsidy on ethanol, which curiously goes to the gasoline blenders, i.e., the oil companies, it may not be long before unsubsidized ethanol becomes economically competitive as U.S. gas prices rise toward $4.00/gallon, a price that people in Europe would still consider laughably inexpensive. Most Europeans pay more than $8/gallon for their gas.
No mention of ethanol is complete without addressing the 'holy grail' of ethanol: Ethanol made from cellulosic waste. Unfortunately, in order to get investment in cellulosic ethanol production and make it cost competitive with corn ethanol, we first need an industry that demonstrates a long term demand for it, which can only be done by producing more flexfuel vehicles that run on an E85 blend and more stations selling it. So we have a chicken and egg scenario because demand for flexfuel cars is dependent on cost and availability of E85 fuel which today can only be produced by corn in the U.S..
When uninformed pundits take every opportunity to vilify ethanol as some sort of scam, it induces fear and uncertainty and has the potential to derail an industry as it takes its first few tentative steps forward. I know that petroleum companies wouldn't mind if that happened, but it's hard to imagine the motives behind everyone else who is trash talking ethanol, some of whom are self-proclaimed environmentalists.
What is Biodiesel?
Perhaps you've seen it. Perhaps you haven't. A local gas station opens a new pump offering E85 a new, environmentally friendly and renewable fuel source! Naturally, you think of filling up at that pump instead of the usual grades of gas. Word of warning: DON'T DO IT! Unless you're one of the few people driving the right car, called a flex-fuel vehicle, that is.In addition to E85, which is a mixture of 85% ethanol and 15% gasoline, another biofuel is becoming available at some filling stations. It is called 'biodiesel'. Although both E85 and biodiesel are made from biomass, there...Headlines:
Biomass Resources
Biomass Companies
Very good article. I would agree that too many people are blaming ethanol for high food prices without knowing all the factors that contribute to the problem. People are going to be in for a real surprise if our policy makers do something rash and repeal the ethanol mandate or subsidy and we end up with higher fuel prices with no appreciable decrease in food prices as a result.