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DAVID KRUSE

By Staff | Jul 6, 2012

Last week I talked about Agriculture being under an unprecedented public relations assault by anti-biofuel petroleum companies and food manufacturers, intending to undermine the credibility of ethanol and biofuels as a politically correct food and fuel production model. They are trying to destroy the ethanol industry by blocking the commercialization of E-15, banning biofuel use by the military and deconstructing the RFS which would destabilize the Midwest economy.

A subscriber asked me, “Why are they doing this?” The answer is unequivocally, “Because of self-interest.”

As to the petroleum industry going after biofuel, we were told that their primary concern was the subsidies, the blender’s credit. They did not abide government picking winners and if the blender’s credit was eliminated, their opposition would deflate. They lied. The blender’s credit was eliminated and they saw that as sign of political weakness that can be further exploited to block E-15 consumer access and end the RFS which is the base for biofuel demand.

The gasoline market is contracting. Vehicles are getting more fuel efficient and hybrids are entering the fleet. Gasoline demand is declining 6 percent annually. Ethanol comes in and takes 10 percent of the gasoline market through E-10. They see E-15 as a threat and hate blender’s pumps that can dispense 30-85 percent ethanol blends. The RFS mandates 12-13 percent of “their” gasoline market share to corn based ethanol consumption and over twice that much lost market share if the 36 billion gallons of ethanol including cellulosic production that is mandated by 2022 is produced. To the petroleum industry, this has nothing to do with what is good for the country or U.S. energy independence but all about a battle to keep market share for the petroleum industry away from biofuel in what is a shrinking motor fuel market.

They are pulling out all the stops to kill biofuel. The petroleum industry has unlimited financial resources committed to the war. They can buy “experts”, “studies”, “politicians” and “media,” anything and anybody as mercenaries to exploit the means to disparage ethanol. They will lie and cheat, without any ethical limitation. This is war. They decided to go for the kill. They see biofuel as a threat to their market share of the motor fuel market and decided not to tolerate it. There are those who have laid out a path to shift away from fossil fuel and the petroleum industry intends to nip that in the bud. Their ownership of politicians is so transparent that only in politics would it not be embarrassing.

The Register reported that U.S. Rep. Steve King said, “If you had told me three years ago that ethanol had a political problem, I would have denied it. But now I can tell you that ethanol and biofuels have a problem. We have to face it.” My comment would be “What, Rep. King, are you going to do about it?” To date, the Obama administration and Democrats, in general, are pro-biofuel. Ag Secretary Tom Vilsack is a phenomenal supporter. So far the EPA has done the right thing approving E-15 and guiding the RFS but that support could end very quickly as political power shifts to Republicans.

The RFS requires the petroleum industry to blend ethanol into gasoline. Without the RFS, ethanol could sell for 5 cents/gallon and they would not sell it because it is not their product. Those that believe that market forces would dictate demand for ethanol are naive to think that the market is not controlled by the petroleum industry with little/no freedom to it. Ethanol supporters such as Congressman King and Latham and Senator Grassley have been rolled over within their party looking like speed bumps against the anti-ethanol assault. It is ironic that the party who had the most to do with developing the biofuel industries now wants to totally undo what has been accomplished. The oil industry will have a majority of politicians in their pocket that don’t give two hoots about the Midwest economy.

The ethanol industry has been fantastic for the Midwest economy and for consumers as it has reduced the cost of fuel at the pump by far more than any cost of subsidies. It has contributed enough to U.S. energy independence to enable us to isolate Iran and not send gas prices soaring. That doesn’t matter to these guys. The petroleum industry had food manufacturers and livestock industries as allies in their campaign against ethanol but the self-interest of these allies was all driven by the price of corn. Food manufacturers and commercial livestock producers benefited from years of corn subsidies sustaining corn production at levels whereby stocks were burdensome enough to depress corn prices below the cost of production. The ethanol industry added demand for corn so that the corn market rose to levels to signal farmers to expand production that corn end-users found painful. They had been spoiled. The contribution of distillers’ grain to the feed supply was ignored in the campaign against ethanol.

The problem with corn prices is only temporary. The market will accomplish its job of expanding corn production as soon as the weather cooperates. They oppose biofuel because of their self-interest of wanting cheap corn. The difference between these interests and those of the petroleum industry is that cheap corn would satisfy them and diffuse their ethanol opposition while nothing will deter the petroleum interests from ethnic cleansing the ethanol industry from the fuel market.

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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