Surprise: Government Mandates Behind Ethanol ‘Bubble’

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Leave it to the foreign press to explain one of the major problems with American over-regulation and subsidies.

The Financial Times published a series Oct. 22 and 23 examining a subject the U.S. media have largely ignored: the effect ethanol mandates and subsidies have had on the ethanol market, investors, and food prices. Here's a hint: the effects are not good.

The first report  highlighted the billions of dollars in losses investors have suffered after fluctuations influenced by legislation. Congress passed a mandate in 2005 requiring 7.5 billion gallons be mixed into the gasoline supply by 2012. They doubled that goal in an energy bill in 2007, requiring 36 billion gallons by 2022.

"Congress and the president created a multi-billion dollar market for corn-based ethanol virtually overnight," the report said, leading to a surge of investment culminating in late 2006. But as more ethanol plants came online and the price of the fuel dropped, the companies' values started declining even as the price of corn continued to rise.

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"Yet such is the enormous political and corporate weight behind the industry that only a brave gambler would bet on it fading away soon," the second report said, illustrating the political support that has kept the failing fuel afloat.

But the report missed on culprit in the push to keep ethanol on artificial life support: the U.S. media. Outright praise for ethanol has subsided. Some reports have even linked the increased use to ethanol to rising food prices and global hunger crises. But the U.S. media have largely failed to connect the increased demand for ethanol to government mandates - essentially artificial manipulation of the market.

The mandates "absolutely" lead to higher corn prices, which lead to higher prices for food, even contributing to global hunger crises in poor nations, according to George Mason University professor and Business & Media adviser Don Boudreaux.

Boudreaux addressed ethanol in "America 2012," BMI's new Special Report on economic issues in the presidential campaign.  

"Farmers, especially corn farmers, made out like bandits because now there's this artificial market enhancement for their product and so they're receiving higher returns causing the price of corn products to rise, the price of foods that are close substitutes for corn to rise, and of course it's ... one element in the rise of the price of gasoline."

Ethanol as an alternative source of energy is one of the major issues in the presidential campaign. Democratic presidential candidate Sen. Barack Obama has supported ethanol, calling it "only the beginning." His GOP opponent, Sen. John McCain, has criticized ethanol subsidies.


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Credit report

But the report missed on culprit in the push to keep ethanol on artificial life support: the U.S. media.

Does the report give an honarable mention (at the least) to the goracle for his substantial contribution of corny stories the media otherwise might have not picked up on?

Mr. Burchfiel get the facts about bio fuels before quoting EU

Mr. Burchfiel,

Respectfully I thought I had put this to rest when spanking Rush Limbaugh on this site along with most of the editors who were spouting as you are without full benefit of understanding the bio fuel situation.

Mr. Limbaugh quietly changed his mind in not giving credit here, but Newsbusters was the source in my postings.

Apparently Mr. Burchfiel you do not read this site, so I will educate yourself and the new additions.

2 1/2 years ago President Bush in the State of the Union announced a new United States policy. Most of you people are so disconnected from the econmic sector you have no understanding of what he was stating.
His points were America was switching to bio fuels and getting out of the Middle East.

I immediately noted what was going on as this was a massive shift in US policy in that food was going to be used as weapon of war to balance the world to the prices of Asian products.
Oil nations can leverage all they like, but Ahmadinejad and Putin just found out you can't eat oil and as oil prices are now being deliberately dropped as I offered to the government in 2007, the price of food in Iran is still high.

Your Europeans whom you seem so enthralled by do not like bio fuels as their banks suck up the lions share of OPEC oil money. So as the oil price drops due to use of bio fuels, that means Europeans financiers loose billions of dollars.

Strangely Mr. Burchfiel you do not equate that Americans then keep those billions of dollars in the US economy. The rural American never saves money but spends it on products and upgrades.
This means people in Minneapolis building pickups, people in South Carolina furniture, people in Pennsylvania building appliances which in turn purchase products which employ you.

THIS is what Gov. Palin is speaking about of keeping energy money here.

Europeans want the energy money there and as you are unaware of Cargill and the major grain handlers, they are all European and hold the monopoly on American grain. They drove up prices in this and spread the food shortage nonsense the same way they say an oil shortage abounds.

Europeans also like getting their hands on American grain donations to the UN, which they then cut short and resell for huge profits to poor people around the world.

Brazil does indeed make bio fuel out of sugarcane which is fine. If you had bothered to look and LISTEN to our Canadian friends who produce huge amounts of bio fuel, you would hear the Truth. Ethanol burns cleaner, scrubs fuel systems and is the best of fuel additives to engines.

You though chose to believe European and oil cartel propaganda instead of researching the facts.

This is about economics and I will give you an understanding of keeping US dollars turning over in American hands inside of the United States for your complaint of "government subsidies".

According to my proven Lame Cherry taxation doctrine, the government always in taxes gets back everything it sends out as follows.

1 dollar goes to ethanol production. That dollar then is taxed at 4 cents (It is more but I'm proving a point). That 96 cents then goes as the dollar is turned over to an employee where it is taxed by the government at 20 cents income tax.

That 76 cents then goes to the bank which is taxed another 4 cents. where it is 72 cents, which goes to buying groceries for a teller where another 4 cents comes off to 68 cents.
The grocer then has another 20 cents as the bank does, as the teller does and you are left with 8 cents going back to the bank and 2 more times, that entire dollar in 1 day has returned back to the government a profit of 16 cents.

That is why I loathe extreme taxation as America has as it retards all growth when it flows to billionaires like Warren Buffett or some medical lab or university that keeps the money instead of spending it.

In closing, I'm trying to be civil here Mr. Burchfiel, but the next time you call American farmers BANDITS, I will take you down several pegs sir.
Your "bandits" made out in NOTHING. You did not figure in the rising costs of land rent, that it costs $1000 to fuel a tractor at each days filling, fertilizer which is oil bases went up as did herbicide and pesticide.

Your "bandits" planted this spring at high prices, are harvesting now as the cereal grain prices have dropped in some cases 500% and diesel fuel is still running at $4.55 a gallon.
So before you slander a group of people being economically raped while your mouth is full, do a great deal of research before throwing around terms like "bandits".

It was Cargill who made out like bandits and are literal criminals in a monopoly, but your sources will not bother to lead you in that direction as they are European based.

You did an extreme disservice to this site as Rush Limbaugh did to his program before he was informed of the facts.
Barack Obama wants biofuels as the financiers gain funds from this and are about to in this oil crash to buy up all of the independent ethanol and bio diesel plants, so another monopoly will be created in their control of bio fuels.

John McCain is correct in trade on this, but incorrect in national security and world policy over bio fuels. There is no cost in this and it benefits even keyboard typers espousing views on this site.

Those are the most notable facts, but that is enough for today. If I offended, I probably meant to in making a point but did so in making this a memory you do not forget as I witnessed thousands of farmers broken by Jimmy Carter and this cartel. I never heard one of you people hear being well fed complaining about farmers and ranchers not being able to afford school clothes for their kids or living in poverty for 50 years in "American cheap food policy" which all of you profitted by.
To slander a noble group of selfless people as "bandits" is as dirty as the political rape which is going on against Sarah Palin.

I do not expect life's experts posting here to know all, but they sure can notice Rush Limbaugh toning down and doing a little reading on this site of the bloggers as the facts do show up here in relating who the problems are and who the people being screwed over are.

Thank you for your time.

With all due respect.

 

agtG

 

 

*HIC IACET ARTORIVS REX QVONDAM REXQVE FVTVRVS

For starters, I didn't say

For starters, I didn't say farmers made out like bandits. Don Boudreaux, a economic professor at George Mason University and a BMI adviser, said that.

But why do you think so many farms (big or small - you seem to think all U.S. farms are small and helpless, not the lobbying powerhouse that large farm enterprises are -- spending hundreds of millions of dollars in lobbying and campaign donations in recent years) switched to corn? It's because the government created an artifical demand for corn, and until supplies meet up with demand, which it has started to do, the price will remain high meaning corn farmers make more money.

I don't know who's "enthralled" by Europeans, but the only connection is that the Financial Times is a British publication. They reported a story that the U.S. media have failed to report: the clear link between government mandates for ethanol and increased food prices.

Simply because the industry is U.S.-based doesn't justify spending more taxpayer dollars to subsidize it, and to create artifical market forces that have widespread impacts on the price of food for Americans, as well as others around the world facing higher food prices because of inflated demand for corn. If ethanol could compete in the energy market on its own, so be it. But it's clear that even with oil prices high, it's not an economically viable alternative. If it were a viable alternative, it wouldn't need government backing and mandates.

I encourage you to read the Financial Times reports on the issue -- rather than simply writing them off as oil industry propoganda, a ridiculous claim. (For example, it cites oil industry support for ethanol mandates.) The Times' Web site has a lot of good information about ethanol, including charts that illustrate the rise in corn prices and the rise in the value of U.S. ethanol companies after the mandate, then the steady decline as the market adjusted. (www.ft.com/ethanol)

What to do

When the crops start to fail ... Factory farming is not very cold resistant.

And for the ethanol subsidies

And for the ethanol subsidies, Cargil and Archer Daniels Midland thank you very much. The rising price of corn and corn syrup which is in virtually all their products, has done well for their stockholders, and jacked up your food bill for everything from cereal to beer.

Cargill today reported net earnings of $1.49 billion in the 2009 first quarter ended Aug. 31, up 62 percent from $917 million in the same period a year ago.

ADM will be announcing their earnings on NOV 4th. Should be good.

Brazilian ethanol is a lot cheaper but we can't get it because of a tariff put in place to protect American cane sugar growers. Brazil is selling to other countries though and increasing their exports by destroying the rain forest to grow more crops.

What a world!

Cargill

Cargill is a US company, not a European company. HQ in Minnesota & Mr. Cargill himself lives in Northern Wisconsin. Not a defense of them just pointing out they & ADM (another ethanol company) have US roots. Like most companies they care about net profit, not where it comes from. The US government created a windfall for them and they naturally exploited it, just like Countrywide or AIG. Yet another reason to limit the power of our government.