Friday, May 09, 2008

A chance to end an argument...

With oil prices climbing relentlessly - much to the dismay of analysts who thought demand would tail off above $100 or so - most of the clamor is understandably unhappy. And the forecast is even more alarming.

But in her inaugural post at Biofuels Update, TP editor Jeanne Bernick shares some new perspective from one of my favorite ag economic myth-busters, Bruce Babcock, who told legislators:
" ...that changes in federal biofuels policies now will not have a dramatic effect on food prices in the short term. And in the longer run, corn and food prices will be determined largely by the price of crude oil."
Biofuels proponents will undoubtedly seize on this opinion as a reason not to touch the the government training wheels for the ethanol industry, since it wouldn't help food prices much.

I think that would be reading it backwards. Here's the key conclusion for me:
Second, in the long run, if gasoline prices rise even higher and signal that we need alternative fuels, the corn ethanol industry will expand well beyond current projected levels even without government subsidies, unless production is somehow capped. [More]
What we are staring in the face is a gold-plated (or oil-smeared) opportunity to bullet-proof the ethanol industry from the whims of legislation and popular belief. We could lose the subsidies and never look back.

Best of all we can start working at our real profession - growing things people want to buy - instead of trying to manipulate government officials and consumers with spin and pathos.

Just think about it. Critics can write or say anything they want, and we won't even have to listen. We'll just answer to the market.

7 comments:

Anonymous said...

Read Babcock's testimony and couldn't agree more. Let the politicians eliminate the "mandate". Let 'em even have the 51cents a gallon tax break, I think BP and the other oil companies get the benefit from that anyway. The politicians can say they "did something" and I don't think it would really make much difference. Then the media would actually have to concentrate on the real causes for high priced oil. You know, global demand, a low dollar, continued record profits by BP and Shell,and OPEC's unwillingness to increase production.

Steve said...

Just because the government doesn't give you a subsidy doesn't mean it can't regulate you anyway.

Paul said...

Maybe after the public realizes what causes high fuel prices they will also see that ethanol they will see that food prices are not driven up by ethanol production either.

John Phipps said...

paul:

I will be posting soon about your comment (and many others I have read/heard) because it amazes me that ethanol's own organizations say: "biofuel is only one factor causing higher food prices" and corn farmers hear: "biofuels are not a factor".

Frank S. said...

We are gullible to think that BioFuels are the problem whether Ethanol or Soy based. Rather they are part of the solution. Our own consumption is somewhat at fault as well. Right now the oil producing Gulf States in the Middle East have us in a position that we can not easily extract ourselves from. Just the most recent comments on the news that the Saudis (the same Saudis that we came to the aid of when Saddam flexed his military muscle) stiffed G.W. Bush when he asked them to open the tap a bit. Their comment being that we have upped the production from 1.4 million to 1.7 million barrels a day for our US client is significant, was in a few words - rather telling. We are not their only client and curiosity has me wondering how much oil China and India and other countries are buying. As we give away our manufacturing jobs to other countries and fail to compete in that area we line the pockets of a reborn society that needs to spend the new money on trinkets of excess consumption they have never seen before. They want the cell phone in every pocket and I-pods and cars and everything else that they believe will make them like us.

Can you wonder what the impact would be if we exported corn only to have the Chinese make Ethanol and ship it back to us cheaper than we can make it? We have lost the ambition to make, except for the few - and our Farmers are a strong part of those few. Just when the US Farmer is puling even or getting ahead a bit - they are blamed for doing instead of being a part of the problem. When will the populace get the message. Don't they know that there is a big difference between Field Corn and Sweet Corn you eat on July 4th? Do they think you can boil up a pot of Soy Beans? It's not like they are Cow Peas and Pork Fat.

I think that Farmers need to start a hard core program of PR, they need to drive the message of where the food comes from and its not grown at Walmart or Sam's or any Grocery store. To not be the scape goat of all the worlds ills, they the Farmer must speak up.

We take pride in participating in the Plant a Row program to grow food for the less fortunate. I hope you do as well.

God's Blessings and a Bountiful Crop

Frank S. in Tennessee

Bruce said...

$4.00 gas has done more in two months to put people into carpools, on bicycles, and into mass/public transit than any 'government' idea did in the last twenty years.

However, the economic roller coaster the US economy will experience in the next 5 years comes from the last 20 years that Congress and Administrations of the U.S. have passed the buck and not put together a reasoned energy plan.

We, the US taxpayer and citizens, have failed to hold accountable our politicians who can't see past their own re-elections.

Congress enacted the 2005 Energy bill that MANDATES ethanol, and again in the 2007, dramatically increased the MANDATE from 9 billion gallons in 2007 to around 36 billion gallons in 2022. This mandate is one reason the price of corn has only doubled in the Midwest. It may triple.

Yes, humans don't eat field corn in great degree. But corn-fed livestock does. The single largest expense to take a 40lb pig to 215 lbs is not the cost of the pig. Its the feed grains.

It was estimated that for 2007, one third of US corn production went to ethanol production. When ethanol production is three times that BY MANDATE of CONGRESS, what are we going to feed our pork and chicken livestock industry? Distiller's grains?

One amazing fact is seldom mentioned.

One gallon of gasoline has more BTUs of energy than one gallon of ethanol. It's simple chemistry.

Actually the ratio is close to 1.3 gallons of ethanol to replace the energy in 1 gallon of gasoline.

So if we use 5 gallons of gas to produce 8 gallons of ethanol, we haven't produced more. We just wore out equipment and eroded land.

I don't know what the current ratio is as yields vary and distiller's efficency will improved. I only wish the one to one replacement not be used. It is misleading and bordering on fraudulent.

Secondly, the Agriculture Industry lobbyists have convinced Congress and the American Farm Bureau that tariffs on the lowest-cost provider of ethanol, Brazil, is better for America than allowing Brazil's ethanol to flood our market. Hmmm.

What would the price of US fuel be if Brazilian ethanol was free of tariffs?

As an owner of farmland in the heartland, I believe the American taxpayer would rather put foreign fuel in their cars than foreign food in their mouths.

Sincerely,
Bruce E Kleckner JD
California USA

John Phipps said...

All:

I think it is important to reiterate that Babcock is speaking about mandates/subsidies. Repealing these would have less impact than imagined because it would not affect ethanol production much if oil stays high.

However, he is not saying ethanol production does not affect food prices.