Last week, the Senate voted 86 to 8 for a new energy bill containing expanded ethanol mandates, and the House is expected to follow suit this week.
...and here's the money quote:
“This is like a runaway freight train,” said Scott Faber, a lobbyist for the Grocery Manufacturers Association, who complained that ethanol has the same “magical effect” on politicians as the tooth fairy and Santa Claus have on children. “It’s great news for corn farmers, but terrible news for consumers.”
But is it just ethanol's fault? I haven't taken pot shots at an article in a while, so read on...
“We did get whipped,” said Jay Truitt, vice president of government affairs for the National Cattlemen’s Beef Association. “We continue to be caught up in this fervor, almost spirituality, about ethanol. You can’t get anyone to consider that there is a consequence to these actions.”
Tradeoffs. Economics is the study of tradeoffs. That's the definition I like. Every decision involves tradeoffs...causes and effects...consequences. Once we realize that, we can stop living in a world of absolutes and stop making stupid policy decision.
He added, “We think there will be a day when people ask, ‘Why in the world did we do this?’”
Why in the world did we do this?
The bill in Congress would increase the mandate for renewable fuels to a striking 36 billion gallons by 2022. That is far beyond a requirement on the books now for 7.5 billion gallons of ethanol by 2012.
Much of the newly required ethanol could be made from agricultural wastes like corn stalks and straw, and its production would not compete directly with food production. But the proposed mandate, known as a renewable fuel standard, also calls for 15 billion gallons of ethanol made from grains, primarily corn.
Hmmmm...a fixed amount of agricultural land combined with a mandated increase in corn production means one of two things. 1) Farmers will have to dip in to their stores of magical pixie dust and sprinkle it on their fields to increase corn yields, or 2) Farmers will plant more corn acreage which will decrease the supply of other commodities--like wheat and soy and barley...--increasing prices.
Ethanol advocates say they believe yield increases will supply much of the extra corn needed to meet the new mandate.
Oh, they're going with the pixie dust theory.
Mark W. Leonard, who raises cattle and corn in western Iowa and owns a stake in several ethanol plants, said it was “absolutely essential” that the government increase the mandate for ethanol, and he urged Congress to push up the deadlines.
I think it is absolutely essential that salaries of college professors who sensibly blog on environmental issues be tripled. But most rational people probably think that's a moronic idea.
“This is a national security issue more than anything else,” said Mr. Leonard, noting the nation’s dependence on imported oil. “We need to quit sending money to people who want to blow us up.”
I'm going to add that to my book of life lessons to teach my kids--never send money to someone who wants to blow you up.
When the current standard was passed as part of a 2005 energy bill, it set off a construction binge of ethanol plants that continues, primarily in the Corn Belt but also in places like California, Texas and upstate New York. As new plants opened and the demand for ethanol increased, so did corn prices.
Farmers have responded to the boom by planting more and more corn. In fact, the amount of corn planted this year, 94 million acres, was the most since World War II, and it produced a record crop of 13.2 billion bushels. But even with bumper crops, corn prices are expected to climb next year.
Does anyone else see the parallels between this and Field of Dreams? If you build it, they will come. But wait, in field of dreams, Ray Kinsella was criticised for plowing under his corn crop to build the field the voice in the corn told him to build. In theaters soon, Field of Dreams II: Ethanol Dreams. The synopsis: Ray's neighbors are inspired to build an oversized ethanol plant when they hear whispers that money will fall from the skies if they build. In an ironic twist, Ray is inspired to overplant the original Field of Dreams to take advantage of the amazing windfall afforded corn farmers by the 2007/2008 Energy Bill.
Joe Victor, vice president for marketing for Allendale, an agricultural research firm in the Chicago suburbs, said Midwestern farmers would face a pleasant quandary in the spring in deciding what to plant because wheat and soybean prices are at or near record highs and corn prices remain bullish.
“Oh geez, they’ve got money galore,” he said. “The Senate vote for the energy bill was a real confidence builder for the farmer to think, ‘They are not going to pull the rug out from underneath us.’”
But who put the rug there in the first place? And why did it come with the free ultra-deluxe padding?
The price increases for corn have had a broad impact, both because farmers are planting more corn and less of other crops and because livestock producers are scrambling for feed substitutes. For instance, soybeans acreage planted this year was about 16 percent less than in 2006.
Told you so...
Feed costs have increased 25 to 30 percent in the last year, according to David Fairfield, director of feed services at the National Grain and Feed Association. He attributed virtually all of the increase to the demands of the ethanol industry.
One consequence of the higher feed costs is rising competition for malt barley between livestock farmers, who want it for feed, and brewers, who need it for beer. Mr. Joyce, the Rogue Ales owner in Newport, Ore., said he has been forced to raise prices to pay for the additional costs of ingredients.
NNNNNNNOOOOOOOOO!
Mr. Rodgers, the Rison, Ark., rancher, said he used to feed his cattle a mixture of corn gluten and soybean hulls. But he said he cannot get corn gluten anymore, and the cost of soybean hulls has risen to $150 a ton from about $105 a ton.
“I’m all for us being energy independent,” he said, but added, “it’s got to be market driven.”
I need a tissue.
The impact of ethanol on prices at the grocery store is less certain.
Grocery prices that are measured by the Consumer Price Index increased 5.4 percent in the last year, with dairy prices up 14 percent; meats, poultry, fish and eggs, 5.4 percent; cereal and baked products, 5.2 percent; and fruits and vegetables, 4.5 percent.
But the Fritos in the vending machine are still $.85. They're made of corn, right? Maybe these economic models don't work.
Those increases outpaced overall inflation of 4.3 percent. Government economists predict grocery prices will jump another 3 to 4 percent in 2008.
In a study completed in May, researchers at Iowa State University concluded that retail food prices had already increased by $47 per person in the previous year or so as a result of higher corn prices. If corn prices near $4.50 a bushel next year, as many people expect, the research suggests that retail food prices for meat will increase about 7.5 percent and egg prices will go up 13.5 percent.
But researchers for the Renewable Fuels Association dispute that math and contend that the link between corn prices and grocery prices is weak.
In other news...baseball officials contend that the link between steroid use and increasing homerun numbers over the last 15 years is weak.
As the debate continues, one thing is certain: American shoppers are increasingly frustrated over rising prices.
“It’s the staples, the cheeses, the milks and produce,” said Ms. Estes, shopping at the Chicago-area Whole Foods. “It’s going up, and my grocery bill at the end, it’s like, ‘Are you kidding me?’”
Like, totally. Wait, why are staples so expensive?
