Comments from a subscriber: “David – I just finished reading your commentary on the farm bill and having a problem figuring out why you are so upset about the extension of the 2008 farm bill besides that the Republican leadership stretched it a bit about not having the votes.
“If this ethanol thing doesn’t turn around soon there are going to be some things that us farmers are not going to like with this corn market this fall. As you well know, the ethanol market is being set by the corn market and not the fuel market, which will not be good if it locksteps the corn market down.
“That direct payment will look pretty good if we have $4 corn next fall.”
Regarding the direct payment, yes it would. It will be ironic when they take the direct payment away just when we needed it again. The “ethanol thing” may not be as bad as it appears. Cheaper corn will make ethanol more competitive. If, as you say, the ethanol price falls with the corn price, ethanol should become more attractive to discretionary blenders’.
It is doubtful, despite all the huffing and puffing that the petroleum caucus is putting into blowing the biofuel house down, that they will succeed. Their political successes limited to the U.S. House and that is not enough to force any change to the Renewable Fuels Standard.
The next problem that would be a challenge to the ethanol industry is the blend wall. As the subscriber suggested, if corn gets cheap, ethanol producers will ramp up and ethanol can get cheap. Ethanol can get really cheap if the blend wall limits market access relative to production creating burdensome ethanol stocks.
Ethanol production has ramped up in recent data and stocks have declined which suggests ethanol demand is good. The coming battle will form around ethanol market access. The petroleum industry is throwing in its means to deny market access to ethanol. The E-10 blend represents a cap on ethanol consumption and the oil boys are doing everything they can to block E-15.
So what we face is a situation where ethanol production will be getting a green light as corn stocks’ tightness moderates and prices fall, but it could be like getting all dressed up with no party to go to when the added production slams into the blend wall. Ironically, the blend wall would be hit short of the 15 billion gallon, corn-based RFS.
They are working to ramp up cellulosic ethanol production, but there may be no market access for any of it if corn-based ethanol production responds to a more plentiful corn supply and utilizes all the ethanol market capacity.
The master plan of the petroleum industry is to beef up the blend wall so that the ethanol industry slams into it, doing as much damage and disruption to biofuels industries resulting from the collision.
This will allow them to tout how flawed the system is so that they will argue getting rid of it. In other words, they are preparing to ambush the ethanol industry at the blend wall. The cellulosic ethanol industry has no market until the wall is taken down.
As to the farm bill, we are back to where we started last year with House and Senate ag committees both advancing versions of the farm bill. This is where it all stopped last year as House GOP leadership refused to advance their bill to the floor. The reason was not because of some benevolence to farmers wanting us to get another year of direct payments, it was because they wanted to gut and hang the farm bill so that no one would ever recognize it again.
The conservative mindset sees food stamps as government waste and crop insurance subsidies as corporate welfare. They had a bill out of committee that cut $30 billion and they wanted $100 billion hoping to win the White House and turn plowshares into more guns. That plan fell apart with the election outcome so essentially what they did is waste another year’s direct payments. They lied about not having the bi-partisan votes to pass a bill.
They should have passed the farm bill last year and moved on to the important fiscal issues that threaten this country. Congress reminds me of my dog, Lucy. When she goes outside to relieve herself, her attention gets diverted from the task as her nose takes her in every direction smelling all the other dogs’ deposits, so that she forgets what she is there for.
I think that Congress has absolutely forgotten what it is there for, instead running here and there with its nose chasing every pile of crap out there. Its response recently to the “new IRS scandals” is nothing but more fire hydrants to draw attention away from its real job, proving again that lawmakers have no more collective brain power than a King Charles Spaniel to stay focused.
Congress is off again into political la-la land claiming to represent our interests when it shows no clue of really understanding what it should be doing or how to do it. It criticizes others’ credibility while having none of its own, which makes it increditably hypocritical. My dog eventually gets her job done which is more than you can say for Congress.
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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