Every day that the drought continues garroting the American Midwest, the lunacy of turning corn into motor fuel becomes ever more obvious and ever more outrageous.
Over the past six weeks, corn prices have soared by about 50 percent. They recently hit $8.20 per bushel, an all-time high. And if drought conditions in the United States and Europe persist, prices may continue climbing. Several factors are influencing grain prices, among them the reduced amount of grain available in storage and increased meat consumption in the developing world. (Remember that most corn is used as livestock feed, not food for humans.) But there is no doubt that the corn ethanol mandates imposed by Congress are distorting the market, which will mean higher prices for everything from milk to cheeseburgers.
And yet the ethanol scam continues. Indeed, thanks to the Environmental Protection Agency, which is allowing retailers to increase the percentage of ethanol that can be mixed into gasoline, the biofuel disaster now extends from the grocery store to the service station. That could mean bad news for your lawn mower and weed whacker, which aren’t designed to run on fuel containing more than 10 percent ethanol. If all that weren’t bad enough, consider this: The United States is now exporting large quantities of corn ethanol to—wait for it—Brazil.
You don’t have to be an economist to understand why the ethanol sector is driving food prices higher. This year, about 4.3 billion bushels of corn will be converted into motor fuel, according to Bill Lapp, president of Advanced Economic Solutions, an Omaha-based commodity consulting firm. That means that nearly 37 percent of this year’s corn crop, which Lapp estimates to amount to about 11.6 billion bushels, will be diverted into ethanol production.
Compare those numbers to those of 2005, when corn was selling for just $2 per bushel. That year, 1.6 billion bushels of corn —or about 13 percent of domestic corn production—was distilled into ethanol.
By dramatically increasing the volume of ethanol that must be blended into our gasoline supplies, Congress has, in just seven years, nearly tripled the amount of corn being diverted from food production to fuel production. And with the worst drought in recent memory desiccating corn fields, those mandates are hurting consumers who are already being pummeled by stubbornly high unemployment and a weak economy.
A recent study published by a coalition of food producers, including the National Turkey Federation, National Pork Producers Council, and the National Cattlemen’s Beef Association, found that since 2007, when the ethanol mandates took effect, prices for grain-intensive foods like cereals, bakery products, meats, poultry, eggs, fats, and oils have increased at almost twice the rate of overall inflation. That study is one of at least 16 reports—published by entities ranging from Purdue University to the World Bank—which have linked the ethanol mandates to higher food costs.
This is not just about corn. Wheat and soybean prices are soaring, too. Wheat prices are directly linked to those of corn: Bakers and other wheat users have to bid up the price of wheat to keep it in relative parity to corn, because if they don’t, the entire wheat crop could be bought up and used as animal feed. As for soybean crops, Lapp says they’re suffering from the very same drought that is hammering corn.
But to fully understand why prices for meat, eggs, cheese, and other grain-intensive foods are soaring, consider this fact: America ’s corn ethanol sector now consumes about as much grain as all of this country’s livestock. Lapp estimates that this year, 4.6 billion bushels of corn will be used for livestock feed. That’s approximately equal to the 4.3 billion bushels that will be used for corn ethanol production. Thus, American motorists are now burning about as much corn in their cars as is fed to all of the country’s chickens, turkeys, cattle, pigs, and fish combined.
Need another comparison? This year, the American automobile fleet will consume about twice as much corn as is grown in the entire European Union. Put another way, the U.S. ethanol sector will burn almost as much corn as is produced by Brazil, Mexico, Argentina, and India combined.
When you look at the really big picture, the numbers are stark: This year, the United States will use about 13 percent of global corn production—that’s about 4.6 percent of all global grain production—so that it can produce a quantity of ethanol that contains the energy equivalent of about seven-tenths of 1 percent of global oil needs.
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