While we have been engrossed with the goings-on in Iowa, two items slipped through the news with hardly a whisper. In 2011 the US became a fuel exporter nation, and corn prices spiked due to the Federal Renewal Fuel Standards, which mandate that that 37% of the U. S. corn crop be converted to the fuel additive, ethanol. The consequences of these two related circumstances constitute a double whammy on the American consumer!
First of all, let’s discuss the conversion of the world’s #1 food product, corn, into ethanol. The reason is simple. Political pandering to the farm vote. The state of Iowa, so much on our minds recently, is awash in corn. 14.8 billion bushels last year. A record. And since over a third (37%) of our domestic corn production is required by law to be converted into automotive fuel, the demand, and thus the price, has skyrocketed. The current price of corn on the Chicago Mercantile Exchange is about $6.50 per bushel – almost triple the pre-mandated level. And of course, the price of corn has allowed the prices of wheat, rice, soybeans, and other food grains, to increase similarly. . . hitting the American consumer in the grocery basket, and, according to World Bank estimates, has pushed 105 million people worldwide to below the poverty line.
The second part of this “whammy” is that from January to October, 2011, the US exported a record 117 million gallons per day of fuel products, worth an estimated $88 billion, making fuels the #1 US exported product! A decade ago, it wasn’t even among the top 25. Does this mean that we are now energy independent? Oh no! We are still the world’s largest importer of crude oil. From January to October, the country imported 2.7 billion barrels of oil worth roughly $280 billion.
But due to our current economic downturn, we are not consuming as much fuel domestically as we once did. Not so in other parts of the world. Developing countries in Latin America and Asia have been burning more gasoline and diesel fuel as their people buy more cars and build more roads and factories. Europe also has been buying more U.S. fuel to make up for its lack of refineries, and for the first time China has become a fuel importer.
Naturally, gasoline and other fuels refined here being sold to the highest bidder. “It’s a world market,” said Tom Kloza, chief oil analyst at the Oil Price Information Service. And since we here at home are a part of that “world market” domestic purchasers have to bid against foreign interests, and the result is higher gasoline prices for us here at home.
All this was sold to us with the justification that it made some environmental sense. Preservation of the planet, and all that stuff. But it doesn’t. For two years, Tad W. Patzek of UC Berkely has analyzed the environmental ramifications of ethanol. According to Patzek, ethanol may do more harm than good. “In terms of renewable fuels, ethanol is the worst solution,” Patzek says. “It has the highest energy cost with the least benefit,” and he has concluded that the green energy consumed in corn and ethanol production is six times greater than it produces. As an automotive fuel, the use of gasoline with only 10% ethanol reduces MPG by nearly a third. Nevertheless, the EPA has recently increased the allowable ethanol content to 15%, causing Briggs and Stratton, the world’s leading small engine manufacturer, to send out a bulletin advising that the use of such fuel would void the warranty on their products!
The Federal subsidy of $0.45 per gallon to ethanol producers, and costing taxpayers over $6 billion in 2011, was allowed to expire at the end of the year. It is a step in the right direction, but it has been described as, “scraping a little frosting from the ethanol-boondoggle cake.” Still in effect is the Federal mandate that 37% of the corn crop from Iowa and other corn producing states be turned into ethanol. Thus the artificial Government-induced market demand will keep food and fuel prices high, and corn-belt farmers loyal.
So in the next eight Presidential Candidate Debates, be on the lookout for a discussion of these two items. Obviously, they were not brought up in any of the pre-Iowa presentations.