Death comes to us all. Life's but a walking shadow | I don't think that we had time to properly consider LongKC's interesting post of last week. While it involves politics it clearly concerns the market for corn and soybeans as well.
In case you missed it look here:
http://www.bloomberg.com/news/2013-09-04/cantor-weighs-tying-debt-c...
My own opinion is that the artificial distinction originally made between "ordinary" biofuels and "advanced" biofuels was unfortunate. That it was more hope than promise was predictable, especially given what was well understood about the chemistry and biochemistry cellulose from the past 100 years of research. The challenge of cellulosic ethanol was greater than anticipa.ted but there is still some promise and it makes sense to provide some incentives.
What is clear is that the American farmer and the ethanol industry have more than met the challenge of producing enough ethanol. And given the fact that the price of crude oil under any reasonable economic conditions is not likely to ever fall much below $100/barrel ethanol is clearly competitive with oil. It is also apparent that given the 400 million acres of available crop land we easily have the capacity to produce even more. It is ethanol’s clear competitiveness that is behind the oil industry’s political machinations.
The argument that the increased price of corn increases the price of food is pretty ridiculous given that the price of feed is only about 15% of the retail price of meat, one of the more expensive foods. Take the recent increase in the price of beef for instance. This price increase which is often blamed on the price of corn can be almost completely accounted for by the effect of the drought on the size of the cattle herd not the price of corn. With the cow herd down to 29 million head the price of calves is $1.50 to $1.70 up from $0.80. This is a consequence of the lack of grass in non-corn growing regions where cattle do not compete with corn. And look at the price of wheat. It is still only about 3% of the retail price of bread. But I digress.
The original idea behind the Renewable Fuels Program was that annual increasing targets would provide incentives to develop and produce more renewable fuels. The market mechanism was to issue RINS, renewable fuel certificates. Even at the time cellulosic ethanol was considered to be the most promising prospect. In fact it was fully anticipated that ethanol would provide an increasing share of the motor fuel supply. The oil industry argues that they can’t meet the goal, RINS are adding to the cost of fuel so the whole program should be abandon. The fact is, there is plenty of ethanol available and plenty of capacity to produce more and meet the RFS goals. It is simply corn ethanol and it is clearly much more economical than petroleum itself.
Now for the “Blend Wall”, everybody’s immediate objection is the “Blend Wall”. And their big reason is the lower energy value of ethanol compared to raw gasoline. Well so what, the energy value of ethanol is about 72% that of currently produced Sub-Octane blending gasoline and the price of ethanol is also about 70% of raw gasoline. So as you increase the % ethanol you decrease the price of the final product to adjust the energy value. (The natural gas utilities do this all the time as a matter of course.) Besides we already know that adding ethanol increases the thermal efficiency of the product and we aren’t even charging for that. The oil industry knows full well that without ethanol they would have to add even more expensive octane boosters made from petroleum which would actually substantially increase the price of motor fuel (the devious little bastards).
So the “Blend Wall” is just as much an artificial limit as anything created by politics. One answer to this conflict between the RFS goal and the “Blend Wall” is to expand the application of RINS to that portion of ethanol use greater than E10, namely E15 to E85. The reason why this makes some sense is that otherwise any incentive to eventually develop advanced fuels such as cellulosic ethanol will disappear. By expanding the market for corn ethanol now you develop and preserve the future market for cellulosic ethanol.
Finally, back to the politics, what follows is a political analysis but it is not partisan. You corn farmers actually have more political power than you sometimes think. Eric Cantor is a Republican and the only thing the Republicans want more than a debt-ceiling limit is to elect a Republican President. In fact if they could elect a president by not killing Obamacare I think they would. Quite frankly tying Obamacare or debt ceiling legislation to changes in the RFS is political suicide for the Republicans. Why, you ask? Take a look at the 2004 and 2012 Presidential election results maps, reprinted below. Notice anything? Several very important swing states are also states where the most ethanol is produced and who provides the bulk of the republican support in those states? Exactly, farmers and people who depend on farm prosperity. In fact the Democrats very astutely supported ethanol even in the face of protest by their own more radical supporters.
So if you don’t do anything political this year, make a phone call or send an email to you Congressional Representative this week making it very clear that if they screw up the RFS or ethanol they can just resign themselves to being the permanent minority party. For example, I called the Republican Congressional Representative’s office in the adjacent district (not even my own district) because he is on the Agriculture Committee and I have never felt more listened to. I explained to one of his office staff that ethanol has been the savior of our local farm economy and for instance the local truck drivers had the better part of a month’s work every year just hauling my corn to the ethanol plant from my little farm, to say nothing of my neighbor’s and his neighbor’s farm.
When I pointed out to him those two election maps he responded very emphatically , “ I will make sure to bring this to the attention of the Congressman.”
You don’t need to donate money, even write a letter. You just need to make a phone call and point to those two election maps. They’ll get the message.
You may not have the money and power of the oil industry but you have something the politicians need even more. Just make sure they don’t take you for granted.
 (2004 election map.png)
 (2012-us-election-results-map.jpg)
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 2004 election map.png (31KB - 64 downloads)
2012-us-election-results-map.jpg (58KB - 52 downloads)
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Revisit LongKC's post about Cantor & RFS
