It seems like only yesterday that ethanol was the darling of many in the energy, environmental, and agricultural sectors of the U.S., not to mention the U.S. government itself. Having a home-grown alternative to oil (and more importantly – to the whims of OPEC) was a very attractive idea, even if it did require subsidies and mandates to get the industry off the ground. Corn-based ethanol plants were being built all across the Midwest and the future of the business looked extremely bright.
As with any new business, there were many unforeseen consequences and the ethanol industry was no different. The first came in the fall of 2006 when the demand for corn to supply the ethanol plants forced prices sharply higher. This was a boon to the grain farmers… not so much for livestock farmers who saw a substantial rise in their feed costs. A couple of years later, with the demand for corn growing even stronger, the first “food-vs-fuel” debate surfaced as many believed that ethanol production was driving food prices higher. More issues surfaced – the water and energy required to produce ethanol was higher than expected; and the amount of money the government was spending to subsidize and protect the industry was excessive, especially in times of huge budget deficits. Slowly but surely, the attractiveness of this wonder fuel was beginning to fade.
Earlier this year, Congress voted to end the direct subsidies to ethanol producers as they deemed them too expensive. Just recently, the livestock and food stuff industries took their swing at the piñata. As reported in the Des Moines Register (Lawmakers Seek to Cut Ethanol Mandates), a bill has been proposed in Washington that would lower the mandated amount of ethanol to be used in gasoline during periods of high corn prices.
Theoretically, this sounds like a good idea – put a mechanism in place that will protect the livestock and food producers during short crop years. But I’m skeptical - corn production is almost totally dependent on the weather and I can’t see the “trigger” working fast enough, or accurately enough, to truly smooth out prices. The result… corn prices will become even more volatile to benefit of no one. While I personally believe that ethanol has a place at the energy table in the U.S., I don’t think that it will be of the size and scope that the enthusiasts hoped for just 5 years ago.
