Well, this is what happens when we box ourselves in with stupid. As the U.S. drought ravages corn yields, we see a scarcity of corn and what accompanies this is an increase in price.
In response to the disappointing yields of our corn, the ethanol industry has cut back on production. HuffPo reports,
The nation’s ethanol plants were expected at the beginning of the year to make about 13.7 billion gallons this year but that could slip to 12.5 billion gallons if the industry continues to run at last week’s level, Dinneen said.
The problem is, the can’t cut back much more, because it is a requirement to make the stuff!
Some environmental and livestock groups have lobbied Congress to pressure the Environmental Protection Agency to relax its Renewable Fuel Standard, which requires the fuel industry to use about 12 billion gallons of ethanol a year. Critics say the requirement diverts too much corn from food to fuel production, increasing food prices.
Shelled maize (corn) at 15.5% moisture by weight: 56 lb = 25.4012 kg. It takes about 22 lbs of corn to make one gallon of ethanol. So you get about 2.5 gallons per bushel. This brings us to about 4.8 billion bushels of corn to meet our requirement.
Now, we don’t know exactly how much corn we’re going to get, but it isn’t going to be much. Of course that’s a relative term. But, I can easily see us dropping below 10 billion bushel. The most recent USDA estimate (pdf) dropped by 1.8 billion bushels from Junes estimate. Though it isn’t clear where they were dropping it from. As I recall the year started with about a 13 billion bushel estimate. Now, let’s put this in perspective of the U.S. historical production through 2011.
As we can see, we have dramatic drops in production from time to time. This, of course, was one of the many reasons why we should have never gone down this road. Now, in the past, this wouldn’t have been a very big deal. The price would have jumped by about a dollar, and people would move to other means to feed their livestock. Exports would have dropped for meal production but again, other things would be available. But, the mandate has ensured demand so much that much acreage has been diverted from other crops to corn production. Let’s look at our prices for context.
Data for both graphs from http://www.usda.gov
Yeh, who wouldn’t start growing corn? So now, we’ll see a lot higher price even still before it’s all said and done. So what does this mean? Well for one, higher food prices. The corn available for feedstock is going to be significantly less than recent years.
But, look at the prices now. Remember the calculations above? If the price is $7 a bushel, then the corn content for ethanol alone will be $2.80 per gallon. That’s before transport to the ethanol plant, that’s before the processing, that’s before the wages, that’s before the profit, that’s before the mixing, that’s before distributing. This insipidly stupid mandate will increase the cost of fuel.
The worst part about all of this is that it was easily foreseeable. This post only touches on some of the absurd problems with this sort of ethanol program. This commodity should have never been chosen. If a person what a Malthusian, they couldn’t have wrote a better or easier script.