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By Staff | Apr 15, 2011

Ethanol is doing exactly what it was supposed to do, help provide a buffer for the U.S. to foreign oil dependence and energy cost price shocks.

We should be jumping up and down in glee over the positive impact that ethanol is having on fuel costs today and instead the anti-ethanol media isn’t running that story.

Is the ethanol tariff restricting ethanol imports?That’s the impression that the anti-ethanol press leaves with the public. They assume that Brazil has ethanol that would be loaded on boats the second the tariff was eliminated. They are uninformed.

Brazil is importing ethanol. There are reports of them importing U.S. ethanol. The price of sugar has climbed so high that refiners are selling sugar rather than converting it to ethanol. Sugar is being priced out of ethanol production more than corn has been.

Brazil uses an E-23 blend where we use E-10 and 100 percent ethanol where we use E-85. Every vehicle General Motors sells in Brazil is flex-fuel and their economic growth rate is stronger than ours, so fuel demand growth is more accelerated.

The U.S. ethanol industry exported nearly 400 million gallons of ethanol last year and expectations are that Brazil will buy more U.S. ethanol deflating those who think that the tariff is somehow holding back a wall of ethanol imports.

The Caribbean Initiative was a measure passed to create a loophole for ethanol to be imported into the U.S. tariff-free through Caribbean countries and none is coming in, even tariff free.

The basic premise that there is a surplus of ethanol someplace restricted from being imported into the U.S. is totally false. Demand outside the U.S. for ethanol is so strong there is an export market for it. Few even understand the relationship between the blender’s credit and the ethanol tariff.

All ethanol sold in the U.S., domestic or foreign, gets the blender’s credit. It has to be paid to all to be WTO compliant. In order to offset the blender’s credit that foreign ethanol would receive so that U.S. taxpayers are not subsidizing foreign ethanol, a tariff is assessed because that is a WTO compliant way to even it up.

There is only a few cents difference between the blender’s credit and the tariff so there is virtually no net tariff on foreign ethanol.

The ethanol tariff under current market condition of global supply and demand is a non-issue.

Some who do understand this do not want the public to have the correct picture because they can rail about the unfairness of the tariff when it makes perfect sense.

One other point – corn does not compete with sugar for acres, so it is not contributing to the shortage of sugar. The shortage of sugar is from strong demand from a growing world economy.

Is the ethanol industry starving anyone? I believe that food costs are climbing because of global economic emancipation of millions and millions of new consumers, EU rejection of biotechnology, weather events, energy cost hikes, protectionist government food policies, and then maybe ethanol.

You would think from ethanol critics that it is number 1, number 2 or number 3 when it is far down the list.

The U.S. ethanol industry is nearly built out to capacity near 15 billion gallons as allowed for in the RFS. The U.S. can spare 3 billion bushel which is the net corn consumption of ethanol when adjusted for distiller’s grain.

The U.S. is in a unique situation in being able to produce corn for ethanol relative to the rest of the world. No one I know is advocating any significant aggregate build up of ethanol production from food crops any where in the world beyond the current U.S. industry which is nearly complete.

Next generation ethanol production would be cellulosic having no impact on food unless you are into eating corn cobs and wood chips.

Those that think that higher grain prices will starve someone do not understand economics. The markets are calling for more investment and more production with higher prices. Higher prices will increase food production and wealth in both developed and undeveloped regions of the world as global food production capacity is increased- which is the only solution to growing demand.

Ethanol is not the problem, it is not the challenge, nor is it even an impediment or obstacle to the solutions as to how agriculture feeds the world.

As Sen. Grassley says, Washington and the public are ignorant about ethanol and the primary media is making them dumber.

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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