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Can Corn Solve Our Problems?

Econ101

Well-known member
… In short, our subsidy for ethanol has become a tax on food…



The Meat Tax



INVESTOR'S BUSINESS DAILY

Posted 4/12/2007



Energy Policy: Those who want to end global warming and our reliance on foreign oil often propose a massive "carbon tax" to make crude less appealing. Don't look now, but you're already paying it.



By heavily subsidizing the use of ethanol, a fuel additive less efficient than gasoline and costlier to produce, Congress has, in effect, enacted a tax hike.



No, it's not the kind you see at the pump each time you fill up — like the current 18.4-cents-a-gallon federal levy on gasoline. Rather, it's the kind of tax you pay quietly, without even realizing it.



We thought about this after reading the Agriculture Department's estimates that the supply of beef, pork and chicken will plunge by a billion pounds this year. Why? The cost of feedstock has soared to $4 a bushel, 30% above last year's average, which was the highest in a decade. It means a cut of 1.7 pounds per person in the amount of meat produced — and higher prices.



Problem is, when people buy meat this year, they'll just chalk up the higher price to "inflation." It's not. It's a tax. And because of that tax, we grow less corn for our mouths and more for our cars.



In short, our subsidy for ethanol has become a tax on food.



The government says U.S. food prices will rise 3.5% this year. But we're not alone. Mexico, highly dependent on U.S. corn imports for tortillas, has been hit even harder. As a result, you can expect more impoverished Mexicans fleeing to the U.S., adding further billions to what we pay each year on welfare and health costs for the 12 million illegals already here. That's another hidden tax.



We currently subsidize ethanol to the tune of nearly $7 billion a year, a big transfer of wealth to farmers that encourages them to switch from food corn to fuel corn. Meanwhile, we slap a 54-cents-a-gallon tariff on ethanol from places like Brazil. So a viable, competitive alternative is frozen out of the market.



Such taxes are a hugely inefficient way to reduce our use of oil. Are they worth it? No. They'll barely dent our energy use. Even if you took all the corn produced in America and turned it into ethanol, University of Minnesota researchers estimate, it would cut gasoline consumption just 12%. To replace all gasoline, it'll take all our cropland — plus 20% more — with no food production at all.



Of course, we could buy a lot of ethanol from Brazil more cheaply, but each time removing the tariff is discussed, the farm lobby starts twisting arms on Capitol Hill. So don't hold your breath.



A strong case can be made for reducing our dependence on foreign oil. Today, 60% of our crude supplies come from overseas, making us vulnerable and less secure.



There are many things that can and should be done. Build more nuclear power plants. Find more domestic sources of oil. Use less energy in our homes and workplaces. Develop new alternatives that might be able to replace oil, like hydrogen fuel cells.



That said, it's silly to impose new layers of inefficient taxes, most of which we don't even realize we're paying, in a futile effort to cut our reliance on foreign oil. We'll end up paying more not just for our energy, but for lots of other necessities as well. Like food.



investors.com/editorial



Ethanol: The Other Corn-Fed Pork



by Bill Bonner

LewRockwell.com

Apr 13, 2007



"You shall not press down upon the brow of labor this crown of thorns," said William Jennings Bryant, on July 9, 1896, in the most famous political speech in American history. "You shall not crucify mankind upon a cross of gold."



The proximate target of this gush of oratory was the gold standard. But look deeper. Behind the scene were millions of farmers who had made an age-old mistake. They had gone too deeply into debt in order to increase production. In short, they had overdone it. The burden of today's cogitation is that they overdo it regularly.



Judged as a businessman, the typical farmer would make a good veterinarian. Over and over, he walks into the same trap. When prices go up, he borrows in order to expand his holdings. He buys more equipment. He leases more land. And he plants more crops to take advantage of the high prices.



Of course, the extra production soon causes prices to fall. Then, all of a sudden, he is ducking his creditors and running up the phone bill to his congressman. Save our Farms…Spare Us from the Evil Bankers… Give us subsidies, tariffs, he asks.



Farm products – especially corn – have played such a large role in American history that like the odor of lemon madeleines in Proust, they recall for us a whole series of debacles. When the farmer gets into a jam, the entire nation feels the pinch. The earliest settlers in the New World learned how to grow corn; it saved their lives. Then, farmers settled in the rich bottomlands…and planted corn. Soon, they were spreading out beyond the Appalachians growing corn everywhere they could turn the earth.



The trouble in the early days was not growing the corn, but moving it. There were no roads, no canals, no railroads. So, the pioneers figured out that they could pack the energy of corn into a denser form that made it easier to store and easier to transport – corn whiskey.



No market is an island. Each one is connected to the mainland of human economy by tracks that bear a constant, and often curious traffic. After the American Revolution, the Founding Fathers attempted to pay off the nation's war debts by imposing a tax on whiskey. But the nine-cents-a-gallon tax on small producers was enough to set off another revolution – the Whiskey Rebellion of 1794, centered in Monongahela, Pennsylvania. The insurgents got their hands on one tax collector, for example; they sheared his hair, tarred him and feathered him. More comedy than tragedy, George Washington sent out 13,000 troops, who managed to round up 20 whiskey rebels. Two of them were convicted of insurrection, but soon pardoned; Washington said that one was a simpleton and the other was insane.



With the rifles back over the fireplace mantles, farmers went back to making whiskey…and produced so much that the price of the elixir collapsed. This was probably America's golden era, when corn liquor was so cheap anyone could get drunk any time of day or night. The wild Irish slums of New York and Boston were soon blighted by booze…while, out on the frontier, even Abraham Lincoln passed around a jug of 'corn.'



Then, a national epidemic of alcoholism gave way to a worse case of sobriety. The sour Temperance Movement arose – citing the many evils of Demon Rum and Cruel Corn Whiskey as Public Enemies No. 1 & 2. This infection of public improvement festered for nearly 100 years and finally broke out in a Constitutional Amendment completely outlawing alcoholic beverages in the United States of America. This was not without political consequences of its own; rum-runners, mobsters, and the Kennedy family all got rich.



But it was not temperance that changed the lives of the corn farmers; it was transportation. In the mid-1800s, first canals, later railroads, made it possible to deliver un-distilled corn all over the country. Suddenly, growing corn was more profitable than ever. The price of farmland west of the Mississippi soared. Kansas farmland went up four to six times between 1881 and 1887. The price of an acre of land on which you could grow corn rose as high as $200.



Nature was rarely kinder to the Great Plains than in the years following the War Between the States. It rained out on the prairies, raising crop yields to levels rarely seen before or since. And the new railroads made it possible, for the first time ever, to ship a bushel of corn – inexpensively – from the western prairies to the major cities in the East. Between 1880 and 1887, Kansas doubled the mileage of rail lines. In that same decade, railroad mileage quadrupled in Nebraska and rose 11 times in the Dakota Territory.



All over the Midwest, farmers planted corn, corn, and more corn.



What happened next could have been predicted – by anyone but a farmer, an investor or a banker.



The years that followed were dry…and as the crops withered, so did the credit available to farmers. In the last three years of the decade, mortgage lending fell to only 10% of the previous three years' activity. Land prices fell. And farmers went bust.



Today, it has been 35 years since a debtor was last crucified on a cross with any trace at all of gold content. But, in 2006, you could still go out to Kansas and buy an acre of farmland for only about $1,000. Adjusted to 1880 prices, that is only about $25, or barely 15% of the peak prices set 120 years ago.



But now, there's a new bubble out on the plains…and a new political scam to go with it. In Martin County, Minnesota, says Fortune Magazine, six new ethanol plants are either in operation or being built. In the last eight months, the price of corn has doubled, from $2 a bushel to $4.



Corn is not just a crop in America; it is a currency. Corn is used to feed pigs and cattle. Corn syrup is a main ingredient in Coca Cola, candies, cakes, ice cream, hamburgers and many other products. When the price of corn changes, every calculation changes with it. The price of land, for example. An average acre in the mid-west produces 180 bushels. At $2, that puts the gross yield per acre at only $360. After costs, farmers had little left over – only about $30, according to Fortune.



But at $4 a bushel, corn farming becomes much more profitable…with net yields 10 times higher than they were two years ago. With that kind of money rolling over the plains, farmers grow bold. They begin to cast an eye over the "Property for Sale" section of the newspaper…and stop in at the John Deere dealership. In fact, Citigroup is expecting a 25% increase for John Deere shares.



In Martin County, Minnesota, an acre of farmland is already up to $4,000 – a price it hasn't seen in 25 years. What happened after the last peak? Corn went down, and farmers who had stretched to produce as much as they could, went broke. Land fell back to $1,500 per acre, where it stayed until the current boom.



Part of the trouble with this boom is that it depends on ethanol. Thirty-one new ethanol plants have been built in the United States since 2005. When corn was $2 a bushel, and oil was $70, they could make more than a dollar per gallon. But at $4 a bushel, their profits have fallen to 3 cents per gallon, on average. And if corn continues to rise, or ethanol prices fall, even with their subsidies, they will be losing money.



Meanwhile, farmers are eager to take advantage of these high prices; they are doing what farmers always do – they are overdoing it again. The US Department of Agriculture estimates that 90 million acres of corn will be planted this year – the most in 63 years. In other words, as corn rises in price, nature seems to wake up. Farmers plant record amounts. And the biggest consumers – particularly ethanol plants, which are expected to take up more than a quarter of this year's crop – cut back. Supplies increase. Demand falls. How long will it be before corn falls again?



Of course, this time could be different. Ethanol may be a fraud, but it's got the U.S. Congress behind it. Corn-fed pork might not be good for you, but there are 3 billion Asians yearning for more of it. On those facts alone, we wouldn't bet the farm. But at least we'd be doing our sums on the subject. Could we sell forward enough corn to pay for a few more acres? Or how about a new air-conditioned tractor?



Whether corn will go down soon, we don't know. But even if the price continues to go up, many farmers will still find a way to over-do it…and ruin themselves.



Joel's Note: So how does one sort the wheat from the chaff when it comes to trading ags? Where along the curve of underdo and overdo are the farmers and just how artificial or fleeting is demand for certain crops? Well, one way to find out is to go straight to the source. Last week our own Kevin Kerr, editor of the massively successful Resource Trader Alert, took a field trip to see what is really going on.



"I'm all set with my Indiana portion of the trip," Kevin wrote to us. "I'm going to follow the corn from the farm to the feedlot and even the ethanol plant, all in the same day."



When people in the industry inquire as to just how Kevin manages to hold up such a stellar track record, I can't help but think his dedication to studying real market forces and his boots-on-ground approach has something to do with it. Certainly the folks who enjoyed an average gain of 96% on his trade recommendations last year are not complaining.



If you are at all interested in learning more about resource trading, there really is no better way to hone your skills than to apprentice yourself to Kevin Kerr. This report will provide a little background information and help you get started.



April 13, 2007



Bill Bonner is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.



lewrockwell.com
 

aplusmnt

Well-known member
People in general and especially the Government do not look at the bigger picture.

I do not think one single thing in recent years will have hurt the economy more than this ethanol push when its all said and done.

All because America is being sold a loosing solution based on emotion, the emotion of freeing ourselves from foreign oil.

It is much like the minimum wage increase, people think these are all simple solutions but do not understand the bigger picture.
 

Steve

Well-known member
By heavily subsidizing the use of ethanol,

interestingly most of the so-called Subsidy is that ethanol is taxed at a lower rate the gasoline....

many similar products are taxed at varying rates...

is it "fair" to tax ethanol at the same rate as "imported Fuel?

Recently many states have offered reduced taxes to lure business, such as Honda and Toyota........should the federal government levy an additional tax on theses subsidized companies to make the end product not cheaper?
 

Econ101

Well-known member
I really wanted to post this article on the bull session because I wanted to bring up a point about it.

This is how the spin works. The first article brings out the point that ethanol demand competes with the demand for corn used in feed in meat production. They say that this in effect is a tax on meat.

You could make the same argument about oil subsidizing meat because fertilizers are heavily used in the production of high yielding "cheap" corn. As the price of energy increases, and therefore the price of fertilizer, this fact will become more and more apparent.

By the way, ethanol production comes from converting the starch in corn to ethanol. After the conversion, the leftover has feed value. It is a liquified mess, but you can use a little more energy to take out the solids and use them as feed. This kind of feed is hard to deal with when it is wet as modern poultry production uses dry pelleted feed. Wet byproduct is used in feeding hogs and cattle but must still be supplemented. It is very very messy. Perhaps in the cornbelt they will feed more to hogs productively with it. We will have to wait and see.
 

Cal

Well-known member
Econ101 said:
Cal said:
I wonder if any of those starving Mexicans have tried to make tortillas out of ddg's? :wink:

They just came north and crossed the border for better jobs.
Well then I geuss they can quit bellyaching about the price of corn! :D
 

Tom Russell

Active member
It all boils down to too much govt.

Govt subsidizes beef.

Then govt subsidizes corn.

Then govt subsidizes ethanol.

Then govt subsidizes beef again because the price of corn is too high.

Then govt subsidizes…

It doesn’t take a rocket scientist to figure out that govt meddling in private business causes both shortages and oversupply. Cut govt down to a manageable size and let the laws of supply and demand determine what we raise, sell, or manufacture and all of us would be better off.
 

aplusmnt

Well-known member
Tom Russell said:
It all boils down to too much govt.

Govt subsidizes beef.

Then govt subsidizes corn.

Then govt subsidizes ethanol.

Then govt subsidizes beef again because the price of corn is too high.

Then govt subsidizes…

It doesn’t take a rocket scientist to figure out that govt meddling in private business causes both shortages and oversupply. Cut govt down to a manageable size and let the laws of supply and demand determine what we raise, sell, or manufacture and all of us would be better off.

Amen! :clap:

5 years ago I would buy gas in the area with 10% ethanol in it, just because I thought it was helping an industry that was trying to compete in the free market. But now that the government is on the bandwagon, and mandating all this ethanol blending. I avoid ethanol gas like the plague, I will not buy it unless I have no other choice.
 

Steve

Well-known member
But now that the government is on the bandwagon, and mandating all this ethanol blending. I avoid ethanol gas like the plague, I will not buy it unless I have no other choice.

It was the EPA under pressure of the clean air act that mandated "reformulated" gas in an effort to reduce pollution..

some wise states in the Midwest choose ethanol, while many of the others went with a cheaper solution MTBE...only to find it created a ground water problem...that is impossible to clean up.

so states (such as Ca and new Jersey) banned MTBE...and switched to ethanol..

in misguided efforts to overturn the portions of the clean air many states became involved in court orders mandating compliance,..not ethanol,.. it just became the states only reasonable choice...but production was not capable of reaching the effected states needs so the feds under court order to enforce the EPA clean air act fed the industry incentives...

so in effect Ethanol demand is a result of the clean air acts court forced compliance,..not the cause.

I still choose ethanol because it is 10% better then "foreign oil"
 

aplusmnt

Well-known member
Steve said:
But now that the government is on the bandwagon, and mandating all this ethanol blending. I avoid ethanol gas like the plague, I will not buy it unless I have no other choice.

It was the EPA under pressure of the clean air act that mandated "reformulated" gas in an effort to reduce pollution..

some wise states in the Midwest choose ethanol, while many of the others went with a cheaper solution MTBE...only to find it created a ground water problem...that is impossible to clean up.

so states (such as Ca and new Jersey) banned MTBE...and switched to ethanol..

in misguided efforts to overturn the portions of the clean air many states became involved in court orders mandating compliance,..not ethanol,.. it just became the states only reasonable choice...but production was not capable of reaching the effected states needs so the feds under court order to enforce the EPA clean air act fed the industry incentives...

so in effect Ethanol demand is a result of the clean air acts court forced compliance,..not the cause.

I still choose ethanol because it is 10% better then "foreign oil"

I may be wrong but states like Missouri passed laws in the last election stating that all gasoline needed to be 10% ethanol. I did not think it had anything to do with EPA but to do with lowering our dependency on foreign oil. At least that is what I remember was their selling point on the legislation.
 

Steve

Well-known member
The Missouri House of Representatives passed HB 1270 & 1027, the statewide ethanol standard, late in the day yesterday by voice vote. The bill, known as the Missouri Renewable Fuel Standard (MoRFS) will increase ethanol use, boost the local economy, improve air quality and help reduce dependence on foreign oil.



RFG Focus on Urban Smog
The RFG program was designed to address urban smog in the nine cities with the highest smog across the country: Los Angeles, San Diego, Chicago, Houston, Milwaukee, Baltimore, Philadelphia, New York and Hartford. In addition, Kentucky, Texas, Missouri and several areas in the Northeast with (high pollution) ozone levels have voluntarily joined the RFG program to curb air pollution in their respective regions.

The RFG program covers 30 percent of U.S. gasoline consumption. RFG standards required the sale of cleaner gasoline in the nine cities and mandated the fuel to include 2 percent oxygen by weight. The plan called for oxygenated gasoline to reduce VOC and air toxic emissions by displacing the components of smog-forming pollutants in the gasoline.

Having been used in fuel for years to boost octane, refiners made the decision to use MTBE, and the petroleum-derived chemical secured 80 percent of the growing oxygenate market.

An unexpected side effect of the RFG oxygenate requirement has been ground water contamination caused by leakage of MTBE-blended gasoline. A colorless liquid that smells like turpentine, MTBE moves faster through groundwater than any other gasoline component because it is non-biodegradable and soluble in water. MTBE has entered underground wells and drinking water supplies across the country

It looks like Missouri got caught like the rest of the states in the Clean air act.and had been hooked to MTBE...only they were volunteerly complying..instead of court ordered compliance..

I would say that if they had high pollution levels, they took actions to keep them out of the court ordered EPA mess...

NJ was in one of the first to accept volunteerily complying,but when reasonable measures failed the EPA stepped in and forced New Jersey to take aggressive actions,...ones that cost alot to comply....so I can understand Missouri trying to stay ahead of the forced act by mandating an reasonable solution themselves..
 
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