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DAVID KRUSE

By Staff | Jul 17, 2015

I don’t know how not to make this report other than a bit personal. I recently read an op-ed written by Isaac Orr, who claimed to be a farm kid from Wisconsin, that was very misinformed on the ethanol issue and the Renewable Fuels Standard.

Isaac also appears to be still wet behind the ears on ag issues, but probably knows more about them than anyone else at the Heartland Institute – a conservative think tank.

One thing that I noted is that Orr accepts and promotes the talking points of ag critics. For example, he writes, “While providing only about 5 percent of the fuel that we use, ethanol eats up 40 percent of the nation’s corn crop.”

Now if he was really a boy from a dairy farm, he would know that dairy cows love distillers grain that comes as a valuable byproduct of ethanol production. Rather than turning 40 percent of the nation’s corn crop into ethanol as Orr claims, the correct number is approximately 24 percent. About 40 percent of the corn that goes through the ethanol production process comes out as distillers grain which is a high value livestock feed. That means that 24 percent rather than 40 percent of the corn crop becomes ethanol. The rest is distillers grain.

New processes turning corn fiber into cellulosic ethanol are adding to ethanol production without increasing corn consumption. Given other productivity improvement of plants and processes, the ethanol industry is making more ethanol from less corn. The petroleum industry always uses 40 percent to inflate how much of the corn crop is used to make ethanol, and Isaac who should know that better than anyone coming from a dairy farm, bought in on the Big Oil talking point. A real farm boy would have the depth of understanding to correct misrepresentation of “facts” and instead Orr perpetuated the distortion.

Next it is important for the non-ag educated to know that this corn is not food corn consumed by people, but feed corn typically eaten by livestock. Livestock production is an integrated part of the ethanol, feed and food sustainable supply system. Orr’s own farm is very likely using distillers grain coming as a co-product of ethanol production to make milk.

Orr understates the contribution of ethanol production to the nation’s motor fuel supply. Approximately 10-11 percent of gasoline consumption each week in the United States is ethanol which, as it is priced significantly cheaper than unleaded gasoline, means that consumers benefit from lower fuel costs at the pump because of ethanol. Spot ethanol was trading 36 cents per gallon cheaper than unleaded gas when writing this report.

Ethanol makes a significant contribution to the nation’s aggregate motor fuel supply that would materially increase fuel costs for U.S. consumers if replaced by petroleum. There are environmental and national security benefits from ethanol as well.

A farm boy should know something about the price of corn and ethanol. Corn prices are below the cost of production despite the demand provided by the ethanol industry. There are substantial carryover stocks of corn weighing on prices. When this happens, farm subsidy payments are triggered.

The Conservative Heartland Institute appears to support eliminating farm support programs including crop insurance subsidies. The ethanol industry, by supporting the price of corn, significantly reduces the cost of farm subsidies. No new industry in my lifetime has created as much wealth for the ag economy as the ethanol industry. That is why the governors of heartland states advocate so strongly for RFS implementation.

The Renewable Fuels Standard is not a subsidy. The ethanol industry has no subsidies. The same cannot be said for the petroleum industry which has subsidies baked into the tax code. The primary function of the RFS is to prevent predatory market domination by a petroleum industry that controls consumer access to product that would otherwise not blend ethanol if it sold for a nickel a gallon and cured cancer. This is where smart conservatives flock to the defense of a free market protected by the RFS.

Orr is not one of those, instead comparing the ethanol industry to Solyndra, a solar power company, which was an unsuccessful attempt by government who picked a loser at taxpayer expense. There is no basis for such a comparison as there is no taxpayer expense to the RFS, in fact, it is the opposite – lowering consumer costs.

Orr champions hydraulic fracturing and therefore consumption of fossil fuels. Shale oil should be able to compete in the marketplace with ethanol so why does the petroleum industry through its control of the fuel distribution system oppose giving consumers access to higher ethanol blends? Why does Orr’s gasoline cost 36 cents gallon more than ethanol? This year we will produce over 14.1 billion gallons of ethanol and the RFS as written only mandates use of 15 billion gallons of corn feedstock ethanol which the industry is sized to produce. Why do they fear implementing the RFS as written?

The answer is that the petroleum industry fears that given a choice through expanded use of E-15 and blenders pumps that consumers would choose more ethanol than stated in the RFS reducing the petroleum industry’s market share of U.S. motor fuel consumption. They fear that given equal access to the market that ethanol demand would grow relative to gasoline. So the oil industry has financed a disparagement campaign directly through the Petroleum Institute and through surrogates like the Heartland Institute to undermine ethanol support.

Mr. Orr appears to be part of that. Isaac Orr may have grown up on a dairy farm in Wisconsin, but he is certainly no authority on ethanol and the ag sector. His attempt to use his farm past as credibility on the subject may have impressed the ideologues at the Heartland Institute but is a disappointment on every other level.

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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