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DAVID KRUSE

By Staff | Apr 8, 2011

Sen. Chuck Grassley commented recently on the ignorance of Washington on ethanol. That ignorance extends far and wide in the mainstream media with many intelligent people who are operating off of an incomplete and erroneous fact set in reaching their conclusions on ethanol.

This ignorance is not confined to just ethanol, but to their understanding of food and ag issues in general.

Most media is urban and rural media is focused mostly as advertisers for ag industry looking to sell farmers something or superficial news reporting.

The investigative reporting that is done about agriculture is typically an endeavor of someone with an axe to grind or on some self appointed crusade to save the world, reshaping agriculture to fit their perception of utopia. As I glean the proliferation of anti-ethanol editorials from the Wall Street Journal to the Chicago Tribune one connecting theme is their lack of broad perspective and assumptions based on errors of facts.

Nearly 40 percent of U.S. corn production goes to the ethanol industry. That is true. What they don’t say is that prior to the ethanol industry being developed there was a persistent glut of corn stocks depressing prices which were consistently below the cost of production which was the motivation for farm subsidies in order to stabilize the ag economy.

Farm subsidies, some of which are still being paid, are the carryover vestige of that era that can be phased out because of ethanol. How is that not a good thing?

The price of corn has improved to the point corn growers are being well paid after a couple decades of low returns. U.S. corn production has expanded by the amount used by the ethanol industry over the course of its development.

Ethanol naysayers would have everyone believe that ethanol has taken corn out of the mouths of babies and hogs. Food and feed usage of corn has not conceded any corn to ethanol production and corn exports have expanded during this period on the productivity of U.S. corn growers.

We produced enough corn for the ethanol industry by making the pie bigger and in doing so brought economic prosperity to the heartland.

Another very important fact that the ethanol naysayers leave out from those calculating net energy to those simply stating ethanol usage of corn is the production of the co-product distiller’s dried grain and the contribution that it makes to the feed supply.

Roughly one-third of the nearly 5 billion bushels of corn going to ethanol comes back pound for pound as an enhanced feedstuff. I say, enhanced because the feed value of the corn and soymeal that it displaces in feed rations is closer to 40 percent of the amount of corn used by the ethanol industry.

DDG will exceed soy meal as the second largest feedstuff utilized in the U.S. this year and the anti-ethanol pundits appear oblivious to that fact. If the displacement shared between corn and soymeal from DDG were all factored against corn, it equals 2 billion bushels.

In other words, the ethanol industry only has net consumption of 3 billion bushels of corn instead of the 5 billion touted. Every time we hear that the ethanol industry uses 100 million bushels of corn, 40 million bushels of feed value is returned as DDG.

The availability of this economically sold feedstuff has shifted the cost of gain advantage in the beef industry in particular from the southern plains to the Midwest where ethanol plants are concentrated and the wet product is available.

DDG exports are surging as well adding a feedstuff to the export market. These are all facts that are omitted from the ethanol debate, because these facts favor ethanol so do not interest the prime media that appears to like the story that ethanol is bad, much better.

Other distortions of facts read in editorials are that ethanol is subsidized and oil is not, farmers receive ethanol subsidies when they do not, and that the ethanol tariff is restricting ethanol imports and that the increase in corn prices is starving impoverished populations. The facts are:

The the oil industry has received multiples of the subsidies through tax benefits and other incentives baked into the system for so long that they are considered sacrosanct, not to mention the military subsidy estimated at $84 billion annually to provide public security service to guard the private oil companies’ oil infrastructure without charge.

It is amazing how many oil Congressman and Senators who favor subsidizing big oil think ethanol is a boondoggle.

Farmers do not receive any ethanol subsidies. The blenders’ credit goes directly to the entity that blends ethanol into gasoline, typically a petroleum industry distributer. The consumer benefits indirectly from the subsidy in the form of lower gas prices resulting from ethanol production which is now only second in equivalence to Canadian oil imports, having exceeded the equivalent of oil imported from Saudi Arabia.

Gas prices are surging because of political turmoil in the Middle East, but without ethanol adding to aggregate U.S. fuel supply, the impact on U.S. energy costs of the oil price shock would be significantly magnified.

Gas would be nearly $5 per gallon today without ethanol in the U.S. fuel mix citing an editorial by the Chicago Tribune.(To be continued next week.)

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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