Home Contact Register Subscribe to the Beacon Login

Wednesday, June 23, 2010

MIKE MAGUIRE: HUGE TAXPAYER INVESTMENT IN ETHANOL YIELDS NEGLIGIBLE RESULTS

http://www.ewg.org/release/driving-under-the-influence


"Between 2005 and 2009, U.S. taxpayers spent a whopping $17 billion to subsidize corn ethanol blends in gasoline. What did they get in return? A reduction in overall oil consumption equal to an unimpressive 1.1 mile-per-gallon increase in fleet-wide fuel economy. Worse, ethanol’s much ballyhooed contribution to reducing America’s dependence on imported oil looks even smaller – the equivalent to a measly six tenths of a mile per gallon fleet-wide."

That $17 billion is just part of the cost. To accommodate the massive increasing demand for corn by the ethanol industry 30% of the US corn crop is now being used as "food for fuel".


With record crops recently (thanks to technological advances, good weather and increased CO2) farmers have been able to keep up with the increased demand for corn.

Let's look closer though. That unprecedented demand base for corn is only being met with increased supply through higher prices.
At the moment, the December corn 2010 contract is trading at $3.78/bushel.
Historically, with a record crop last year and Monday's USDA rating of the corn in the ground right now at 77% good to excellent, we would be seeing prices under $2.50/bushel.
http://usda.mannlib.cornell.edu/usda/current/CropProg/CropProg-06-14-2010.pdf

In the past,  before ethanol hit the scene, $3.78 corn occurred only because of shortages or expected shortages from droughts or other powerful forces.
Those extremely high prices would do 2 things. 1. Stifle demand, providing a "rationing" of the small supplies and 2. Give incentive for more production/supply. On the rare occasions that prices spiked that high, it would only last a couple of months.

Now we have $3.78 December corn with record supplies from last year and the new crop off to a record good start.

The reason is ethanol. It goes MUCH farther than that though. Since we need 30% more corn now to supply the ethanol plants, that means we need more farmers and more acres growing corn. Those millions of acres required to do this were not just sitting bare before the ethanol scam. The vast majority of those acres were/are on farm land that was growing something.


If some of those acres switch from something else to corn, there are less acres that are growing the something else.

When that happens, we have less acres planted to soybeans, wheat, cotton and other crops.

TREASURE ISLAND - COINS AND PRECIOUS METALS

 

 


But those crops also have a solid demand base that can only be met with supplies from farmers growing a big crop on a large number of acres.

What happens is that prices of those commodities will compete with each other to give farmers the financial incentive to grow more of the one that is priced highest.  If corn goes from $2.50 to $3.78 for instance, soybeans will not stay at $6 which might be fair value before ethanol. $3.78 corn will catch a lot of farmers attention that would otherwise grow soybeans. To keep farmers interested in growing enough soybeans, the price needs to be $9, otherwise their will be a shortage of soybeans and the price would run up even more. This effects other crops with higher prices too. Good to reward hard working farmers, bad for everyone else not tied to ethanol.

The one thing that has allowed us to dodge the big bullet so far, is that the US growing weather has been great for many years.

The last drought was 1988. This is a record for going without a drought.

We've had record crops but are barely managing to generate enough supply. There are some other factors too, like demand coming from China.

Record crops and supplies will not continue forever and there is a disaster coming up because of the false sense of security
our thoughtless governmental policies have set us up for.

When the inevitable drought comes, we will not have an extra 30%+ for ethanol.

The effect will be prices going higher than anyone imagined and not just for corn. Ethanol plants already taking billions from our taxes will be even less profitable to operate if the price of corn doubles or goes to $10......unless the price of ethanol also doubles.
For that to happen, the price of gas will need to go much higher too. This and prices of most other commodities will go higher.
Those in the livestock industry that have large expenses to feed their animals will be losing loads of money again like they did when a small sample of this happened 2 years ago......but that was without a drought or short crop.

Other than rewarding the hard working farmers that grow crops, ethanol is benefiting a few and costing everyone.
When we do have that drought and prices go to the moon, the same ones responsible for these horrible, wasteful policies will blame it on global warming and use that to push harder for the insane policy of taxing plant food(CO2).

So we have:
1. A government that wastes massive amounts of food and our money to create almost the same amount of energy used to go into it
2. Is against increased levels of free atmospheric crop/plant fertilizer(CO2) and wants to take more of our money to cut down on it.
3. On top of that, they pay loads of our money each year to farmers to not grow on millions of acres of CRP land.

Being a meteorologist involved in agriculture has given me the proper insight to view the accurate science and realities of these situations. It makes me afraid to think about the other hundreds of policies that I know nothing about but can hardly trust in the hands of some pretty poor decision makers.

Click here to email your elected representatives.

Comments

In 2009, US on-highway vehicles burned about 134.37 billion gallons of gasoline (21.68% or 29.14 billion gallons unblended and 78.32% or 105.23 billion gallons blended with ethanol) and about 38 billion gallons of diesel fuel. So a total of 172.4 billion gallons of fuel (gasoline and diesel) was used on the highways. Of the 105.23 billion gallons of blended gasoline, 10.76 billion gallons of ethanol was used or an average blend of 10.23% (slightly over E10). What this reveals is that the E85 usage figures are almost insignificant.

Total annual vehicle miles traveled in the U.S. exceeded 3 trillion in 2006 and 2007 and was 2.93 trillion in 2008 and 2009. It can be roughly assumed that about 75% of the miles traveled were by vehicles burning blended and unblended gasoline. So, in year 2009 about 2.25 trillion miles were traveled on 134.37 billion gallons, making the overall gas mileage about 16.75 miles per gallon.

A 1.1 mile per gallon increase in overall fuel economy in year 2009 due to introduction of ethanol into the marketplace represents an improvement in overall gas mileage from 15.65 miles per gallon to 16.75 miles per gallon. And for the 2.93 trillion miles traveled in 2008 and again in 2009, it represents 2.66 trillion gallons in savings. At the 2009 average gasoline price of $2.875 per gallon, that amounted to a savings to the taxpayer of $926.5 billion dollars! Not a bad return on an investment by the taxpayers of $4.8 Billion in ethanol subsidies in 2009.

Bottom line: When reading articles with numbers in them, sometime the numbers, such as the paltry 1.1 mile per gallon savings due to E10 (representing 72.38 % of gasoline sold), can appear to be small savings. But when the savings are represented by actual dollars saved, in this case $926.5 billion, and then compared to the taxpayer investment of $4.8 billion in year 2009, the subsidies don’t appear to be so bad, do they?

Lynn Bergman on June 23, 2010 at 08:43 pm

And the replacement of MTBE (a known human carcinogen) with ethanol in gasoline (E10) is infinitely better for our environment!

Lynn Bergman on June 23, 2010 at 08:54 pm

My previous post contained math errors for which I apologize. The correct numbers are presented below:

In 2009, US on-highway vehicles burned about 134.37 billion gallons of gasoline (21.68% or 29.14 billion gallons unblended and 78.32% or 105.23 billion gallons blended with ethanol) and about 38 billion gallons of diesel fuel. So a total of 172.4 billion gallons of fuel (gasoline and diesel) was used on the highways. Of the 105.23 billion gallons of blended gasoline, 10.76 billion gallons of ethanol was used or an average blend of 10.23% (slightly over E10). What this reveals is that the E85 usage figures are almost insignificant.

Total annual vehicle miles traveled in the U.S. exceeded 3 trillion in 2006 and 2007 and was 2.93 trillion in 2008 and 2009. It can be roughly assumed that about 78% of the miles traveled were by vehicles burning blended and unblended gasoline (134.37 / 172.4). So, in year 2009 about 2.285 trillion miles (2.93 T miles x 78%) were traveled on 134.37 billion gallons, making the overall gas mileage about 17 miles per gallon (2.285 T miles / 134.37 B gallons).

A 1.1 mile per gallon increase in overall fuel economy in year 2009 due to introduction of ethanol into the marketplace represents an improvement in overall gas mileage from 16 miles per gallon to 17 miles per gallon. And for the 2.93 trillion miles traveled in 2008 and again in 2009, it represents 8.4 billion gallons in savings. At the 2009 average gasoline price of $2.875 per gallon, that amounted to a savings to the taxpayer of $24.15 billion! Not a bad return on an investment by the taxpayers of $4.8 billion in ethanol subsidies in 2009. A factor of five (5) times or 500% return on investment. This is what wise folks call “spending a nickel to save a quarter”.

Bottom line: When reading articles with numbers in them, sometime the numbers, such as the paltry 1.1 mile per gallon savings due to E10 (representing 78.32 % of gasoline sold), can appear to be small savings. But when the savings are represented by actual dollars saved, in this case $24.15 billion, and then compared to the taxpayer investment of $4.8 billion in year 2009, the subsidies don’t appear to be so bad, do they?

Lynn Bergman on June 25, 2010 at 01:47 pm

Here is Mike Maguire’s response that I am posting for him until we can figure out a software problem:

Lynn,

Nice job on some impressive math but you are missing the entire point of the article, that the cost to tax payers to subsidize ethanol (which you site as if it’s the entire cost) is a small part of the massive “hidden” cost as prices for many commodities and fuel makes it many times that amount. The link at the top and the quote that follows, along with numbers used by you for comparison came from the “Environmental Working Group”.


This article however, explains how this is just a tiny fraction of those costs. A hog farmer for instance that must pay $3.78/bushel for corn to feed his animals loses money vs. $2.50/bushel. This much higher cost to feed animals is passed along to consumers. Many hog farmers went out of business 2 years ago when ethanol caused corn prices to spike higher. When herds are liquidated, there are less animals to slaughter and less pork or beef supply. This always causes higher prices. . Even when corn prices dropped (still greatly inflated by ethanol demand), profit margins were/are still so slim and risks now incredibly high because of feed cost, that we still have inflated meat prices. Compare the price of steak today to what it was before ethanol. What IS that cost to consumers if you multiplied each pound of steak by that $1? Think about all the other hundreds of products effected. Betcha very few folks know that ethanol is hitting their pocketbooks in a big way every time they go to the grocery store.

 


A close personal friend is a hog farmer who managed to survive because he was lucky enough to also grow enough of his own corn to feed the animals and borrow a lot of money. This a deeply flawed policy that uses food for fuel and hurts almost all of us, some worse than others.

 


Here is a great article that explains exactly how this effects the cattle industry: http://www.agmrc.org/renewable_energy/ethanol/impact_of_rising_feed_prices_on_cattle_finishing_profitability.cfm

 


I strongly support alternative energy sources that make sense and one that looks promising is ethanol…...from switchgrass!!! http://www.scientificamerican.com/article.cfm?id=grass-makes-better-ethanol-than-corn

Steve Cates on June 28, 2010 at 08:18 am

As shown in work done by Iowa State University, continued relatively stable corn prices (as opposed to the excesses of 2008 and early 2009) should prevent a return of the difficulties of early 2009.

I know it is difficult to look far into the future but imagine 30 years from now zero oil imorted from the middle east, the few internal combustion engines remaining running on E85, North Dakota’s entire governmental structure (state and local) run on the interest from an oil, gas, and ethanol tax trust fund, not a single remaining tax to be found in the state, every single child born with a great opportunity to stay in North Dakota if wished, and not a single young soldier lost on foreign soil to protect our economy.

Yes, I am a dreamer…and so was Thomas Alva Edison, Ben Franklin, Bill Gates, etc. etc.

Just go to Red Trail Energy’s web site and go through the list of myths and the corresponding truth; that is if you are open minded enough…

Lynn Bergman on July 1, 2010 at 11:05 pm
Page 1 of 1        

Post a Comment


Name   
Email   
URL   
Human?
  
 

Upload Image    

Remember my personal information

Notify me of follow-up comments?