SubsidyEye

A Complete Guide to Agriculture ETFs

Sliman is right that sun spots have a much bigger effect on weather than global warming. But that is, in fact, what worries scientists. Currently, we are in a period of low sunspot activity, which normally correlates with cooler weather. Hence, to the extent there is a general upward warming trend caused by increases in atmospheric greenhouse gases (a phenomenon that is well documented, whether or not one believes that humans are to blame), it is being moderated at the moment by the sun's lower activity. We have no way of knowing for how long the sun will remain quiescent. But once it returns to more "normal" sun-spot activity, the world could be in for a big and rapid rise in average temperature.

A Complete Guide to Agriculture ETFs

ETF Grind: sorry if I sounded critical of your simple message, but since you said that "the reasons [for rising prices in the long run] may be surprising" seemed to suggest you were going to provide new information. A decade ago, the FAO was already predicting increased demands for livestock feed bcause of increases in global per capita income.

Is growing wheat organically "just a waste of resources"? Plant breeders are working on developing varieties that are more naturally resistant to diseases like dwarf bunt, and the yields are not always lower:

organic.tfrec.wsu.edu/...

And at least farmers who grow organic wheat are producing for a market that pays a premium for their product (unlike producers who are producing for a fabricated market, such as for biofuels).

A Complete Guide to Agriculture ETFs

Corn prices did not peak at $5.50 per bushel in 2008, unless one is talking about average monthly prices received by producers. For consumers what matters was the price in the cash market (over $7.00) and on the CBOT (over $7.50)

www.porkmag.com/upload...

1.bp.blogspot.com/_xlG...

The reasons for the price spike are hotly debated, and while fear over a shortage of supply certainly fueled the run-up in prices, it was the sharp increase in demand -- fueled by ethanol subsidies and mandates in the United States, and subsidized biodiesel in Europe -- that was the more fundamental factor.

This article is not telling us anything that anybody even remotely clued into what is happening in agriculture have known for at least a decade: that it is the composition of demand that is the bigger driver than an increase in the numbers of mouths that must be fed. It has also been clear for some time that water (exacerbated by climatic changes) is a limiting factor.

The author of this article is too dismissive of organic agriculture, however. Organic agriculture, as marketed to relatively wealthy consumers in the west, accounts for a tiny fraction of the land undercultivation. Virtually no feed corn is grown organically. The crops that are under organic cultivation tend to be those for which the switch to organic methods is easiest and most profitable. Many crops (especially spices in the tropics) were already being grown without purchased chemicals in any case. The world need not fear organic agriculture. It will increase, for sure, but only where farmers see it pay-off: through improvement in their own bottom line, and through the advantages they see in longer-term soil fertility and yields.

Finally, the authors of this article should know better than to blame environmentalists for the corn-ethanol debacle. That bandwagon got rolling in the late 1970s, pushed by Big Ag (mainly ADM) and powerful corn-state senators. Environmentalists briefly embraced the product (from about 2003-2006), but as soon as they saw its dark side they abandoned it wholesale. Nowadays, corn-ethanol's fiercest and most effective critics come from the environmental community.

Biofuel Production Will Continue to Grow

There is one flaw (well, actually, more than one flaw) in your argument, Tdot: had gasoline not been available, it is unlikely that spark-ignition engines would have developed in a big way, period. That is because the scale of grain production that would have been required to feed growth in demand for transport fuels would not have been able to keep up. Even today, if the United States converted all of its corn crop to ethanol, it would satisfy only 12-15% of gasoline demand.

One could just as easily speculate that vehicles powered by EXTERNAL combustion engines (see en.wikipedia.org/wiki/...) would have taken the lead.

"Maybe it isn't to late to just throw down and start to invest the necessary trillions of dollars (over the next few decades) the pursuit of developing the alternative renewable fuels." May we quote you on that figure? And why are you so certain that investing in alternative rennewable fuels -- by which I assume you mean biomass-derived transport fuels -- would be the most cost-effective use of the public's (read: other people's) money, even if your only concern is to reduce dependence on petroleum?

Biofuel Production Will Continue to Grow

User 40970. Got any figures on how much Verenium/BP, Mascoma, BFRE Iogen/Shell, Poet, etc.? are now producing ethanol from waste -- crop waste or otherwise? The sum total is not even equal to one moderate-sized corn-ethanol plant.

Ethanol improves some air pollutants, increases others.

Suggest you do some simple research, User. This from Wikipedia: "by February 2009, the fleet of 'flex' cars and light commercial vehicles reached 7.1 million vehicles, which represents around 21% of Brazil's registered light motor vehicle fleet. The success of 'flex' vehicles, together with the mandatory E25 blend throughout the country, have allowed ethanol fuel consumption in the country to achieve a 50% market share of the gasoline-powered fleet by February 2008. Considering diesel-powered vehicles, sugarcane ethanol represented 16.7% of the country's total energy consumption by the automotive sector in 2007."

Yes, all spark-ignition vehicles in Brazil burn SOME ethanol; they can't avoid it, as it is blended in all gasoline. But the overall share is still only 50% of the gasoline-powered fleet, and less than 20% of the country's total energy consumption for ground transport.

Biofuel Production Will Continue to Grow

WTF? There is so much propoganda and misinformation in this article, I don't know where to begin. "Brazil runs 100% on biofuels, Europe 52% of all new vehicles are biofuel"? Where did you get those figures from? Most new passenger vehicle registered in Brazil are flex-fuel vehicles, but the share of gasoline in the country's total consumption of light transport fuels is still around 50%. And if you are saying that any diesel engine can use at least low-level blends of biodiesel, that is true. But the share of biodiesel actually used in vehicles in Europe is no more than 2%.

You speak of"the "global demand" for biofuels as if it is consumer driven. In virtually every country where biofuels are used, the "demand" is a totally artificial one, created by mandated blending requirements (yes, even in Brazil), subsidies, or usually a combination of both. The only thing that is impressive about the growth in the use of biofuels is, as AlexS puts it, the enormous power of the special-interest groups who promote biofuels, and their influence over powerful friends in high places.

You say that "ethanol production results in nearly twice as much energy than used in its production". That is only true of sugar-cane ethanol. If you are speaking of corn ethanol, it is only true (and then only for the most-efficient plants in teh Midwest) if you phrase it as "corn ethanol production results in nearly twice as much energy than the energy contained in the fossil fuels used in its production." There is energy in the corn kernels themselves, but life-cycle analysts in the United States tend to ignore it, hence the confusion. By the way, elsewhere, you say "Each gallon of corn ethanol today delivers as much as 67% more energy than is used to produce it." That is far below "twice".

Some of your statements are downright bizzare, such as "The bad news is the U.S. plans to cut spending for farm programs, placing a hard cap of commodity program payments of $250,000, phasing out direct payments to farmers with gross sales over $500,000 and making cuts in the federal crop insurance program." Bad new to whom? Millionaire farmers? These are pure rents for land-owners; capping eligibility at those kinds of rates will have virtually no effect on production or prices, though it will save taxpayers some money.

All in all, this is an over-long, infomercial for the biofuel industry. Seeking Alpha can do better.

Congress Considers Bailing Out Its Ethanol Mistakes

Pathetic. In 2006 the ethanol industry was proclaiming that it could compete with gasoline on the basis of price alone, WITHOUT subsidies. Of course even then it didn't volunteer to give up its subsidies, and it certainly isn't going to now. I expect than in 2009 Congress will pass all manner of regulations and subsidies to keep the ethanol industry "viable", including requiring the (bailed-out) automakers to produce more flex-fuel vehicles, guaranteeing loans for the construction of dedicated ethanol pipelines, and subsidizing filling-station pumps that can dispense ethanol at blends between 0 and 85%.

The Future of Ethanol

Tim: obviously, I'm not willing to subsidize any corn farmers to change over their machinery to plant and harvest sorghum. I was simply trying to see what Adam's answer to the question would be. These kind of articles are wearisome, because they suggest that there is the proverbial money on the table that companies are not picking up. Your answer makes sense, Tim. But one has to wonder why it did not occur to John Adam.

The Future of Ethanol

John, if sweet sorghum is such a great idea, then why are 99% of the existing ethanol plants based on corn? Surely a company like ADM or VSE would have not been dumb enough to have overlooked the biofuel equivalent of money lying on the table.

Study Shows Ethanol Energy Efficiency Is Growing

Wheels,

You ask: "Is it safe to assume that you thik the whole carrot-and-stick methodology of our tax system is wrong? If we don't like something,"tobacc... alcohol," we tax it. It we want to promote something, "ethanol, wind power," we give it tax breaks or credits."

Well, first of all, you are mixing tax systems. Tobacco and alcohol are subject to excise (product-specific, per unit) taxes. Ethanol benefits at the federal level from something called an excise tax credit, but which is actually a subsidy provided through the IRS -- i.e., through reducing corporate income taxes. That means that it is not subject to budgetary limits, which it would be if the subsidy were provided through the USDA or the USDOE. It also means that somebody who walks or rides a bicycle to work is subsidizing people who drive.

The way that ethanol is supported in the United States also has very poor equity characteristics. Moreover, taxpayers pay the highest ethanol subsidies to people driving the least-efficient vehicles -- big, E85-guzzling flex-fuel SUVs and trucks -- to the tune of $1000 per year PER VEHICLE in the case of a typical FFV, the Chevy Tahoe.

Second, sound tax policy calls for taxing what what we know to be bad -- e.g., pollution. If one of the justifications behind supporting biofuels is to reduce greenhouse gas emissions, it would make more sense to provide a tax differential in the gasoline tax based on its life-cycle GHG emissions. The current rate of subsidization is far higher than the tax differential one would allow at a typical carbon tax of, say, $50 per metric ton of CO2-equivavlent.

It is much more hazardous to directly subsidize the production of something we think to be good, especially a product (as opposed to say, a service like health care for the needy). For one, if subsidizing that product lowers the price of both it and its close substitute (in ethanol's case, gasoline), then what the subsidy amounts to is, essentially, a subsidy for consumption. And we know how self-defeating such subsidies can be.

If the public policy goal is to discourage gasoline use, then why not raise the federal excise tax on gasoline to something closer to the excise taxes levied on gasoline in most other industrialized countries. (Even Turkey charges a far higher tax on gasoline than does the United States.)

That goes, by the way for wind power and other renewables. By providing tax credits to those renewables we are hiding the true cost of producing clean electricity from consumers. In other countries (and in some U.S. states), renewable portfolio standards give preference to wind and solar power, but at least in so doing they force the higher cost of the renewable-generated electric power to be borne by electricity consumers, not taxpayers (and especially not taxpayers from another part of the country).

None of the above applies to subsidies for research. There are plenty of good reasons for governments to support research, and some development and demonstration. But even there, R&D money is not unlimited, so the more neutral or performance-based governments can be in deciding who, and what technologies, benefit from R&D support, the better.

Study Shows Ethanol Energy Efficiency Is Growing

Wheels 14,

My opninion on including a 50% tax break for the building of refineries that process oil shale, as well as tar sands, in the bail-out bill?

How's, "Outrageous, stupid, but not surprising."

As the late, , Brian J. Finegan wrote in, "The Federal Subsidy Beast: The Rise of a Supreme Power in a Once Great Democracy", there is no longer a Democratic Party and a Republican Party in the U.S. federal government. There is only one party, the Subsidy Party.

www.abebooks.co.uk/pro.../

(I'm not sure, by the way, what the other stuff in your message is supposed to refer to.)

Study Shows Ethanol Energy Efficiency Is Growing

RickH,

In short, you can't show that ethanol (which replaced more like 4.8 billion gallons of oil in 2007, not 6 billion gallons, though it may be at that higher rate today) has specifically displaced oil imports from "terrorist" suppliers. Of course not: the world oil market doesn't work that way. And, in any case, even if it did, other countries would come in to fill the gap created by reduced U.S. imports. Unless somebody organizes a naval blockade targetted at nasty oil regimes, they will keep exporting at whatever is the world price ... and keep raking in the dollars.

Does that make me an oil supporter? Hardly. And, no, I own no shares in either ethanol or oil companies.

But I do have an interest in good public policy -- which ethanol booseters seem to find quaint. By the way, nobody here challenged the fact that "ethanol efficiency is improving." What I did challenge was Tim Plaehn's twisting of the numbers from the original story to announce that studies had shown that ethanol production is "2 to 3 times more efficient" than originally thought. Tim has shown himself to shoot from the hip whenever he (somebody who DOES own ethanol stocks) defends his favorite industry, often seeming to pull numbers out of thin air.

By the way, I'm glad that you at least acknowledge that high prices induce reductions in demand. That's progress of a sort.

Study Shows Ethanol Energy Efficiency Is Growing

Dear Rick H,

I guess that means we agree that ethanol subsidies have not saved taxpayers money. Good, at least we have that settled.

Have ethanol subsidies, on balance, created more jobs than they have cost the economy? That would be quite a feat for a heavily subsidized industry. Mostly they have driven up commodity prices (affecting food prices for everybody), which in turn means increasing the price of farmland:

www.extension.iastate....

Got some figures to back up your assertion that ethanol has substantially reduced U.S. imports of petroleum from, say, Iran? (Which, in your opinion, are the "terrorist" suppliers?) Because, according to the latest figures from the Energy Information Administration, year-to-date imports of petroleum (crude plus products) are DOWN from Canada and Mexico (our No.1 and No. 3 suppliers), but UP from Saudi Arabia (our No. 2 supplier).

www.eia.doe.gov/pub/oi...

Study Shows Ethanol Energy Efficiency Is Growing

Rick H,

I was refuting Wheels' specific point, which was that 2005 was not an aberrant year. S/he may not understand how the marketing-loan payments work, which depend more on how low the price dips in the year than the average price in the year. In the case of 2005, the closing of the Gulf Ports in the aftermath of Hurricane Katrina coincided with the new harvest. Prices plummeted and marketing-loan payments soared.

My larger point is that, if one is going to "credit" ethanol subsidies for reducing farm subsidies, you have to compare with a more average year, or construct a realistic counter-factual.

Point 1: Ethanol subsidies are not part of the envelope of farm payments that are limited under the USA's commitments to the WTO. Hence, as long as those payments are under the limit, Congress will find a way to keep the money flowing. When you look at total payments over the last several years, expected payments in 2008 are close to the average, assuming that 2005 was an outlier. (See my numbers, above.) Hence, it is hard to make the case that there have been any significant savings overall in farm payments.

Point 2: In saying that "14 billion bushels of corn per year with an average support cost of 50 cents per bushel is more than this years ethanol subsidy". It is more than what will be paid out in the volumetric ethanol excise tax credit (perhaps $4 billion this year ... but rising every year, and it is not the only subsidy benefiting ethanol), but 3-4 billion of those bushels are themselves due to ethanol support policies. Hence, the quantity for comparison should be the amount of corn that would have been produced in the absence of ethanol.

Looking at the trend in recent years (before ethanol production started expanding rapidly), annual U.S. production was fairly stagnant, at around 250,000 metric tonnes (around 10 billion bushels):

farm4.static.flickr.co...

With rising world demand, and therefore U.S. exports, production in the absence of ethanol would have risen to perhaps 11.5 billion bushels. But, that leads me to point 3 ...

Point 3: With that rising world demand, corn prices would have risen -- not by the same degree that they have with the additional demand for ethanol, but by at least $1.50 per bushel. Even the World Bank's Donald Mitchell, whose estimate of the contribution of ethanol to the rise in commodity prices is the highest among the major studies,

papers.ssrn.com/sol3/p...

allows that some 1/3 of the rise (between 2002 and April 2008) was due to rising energy prices and factors such as increased world demand for food and feed and the fall in the value of the dollar against other currencies.

So, to complete our counter-factual, even in the absence of support for ethanol, corn prices would have risen above the levels that would trigger price-support payments.

Conclusion: ethanol subsidies have not saved taxpayers money. They have, and will continue to be, an additional burden on top of the already existing farm payments.

Study Shows Ethanol Energy Efficiency Is Growing

Sorry, obviously I meant to say, "then why shouldn't the long-term trend (all else equal) for corn prices have been downwards, or at least rising at less than the rate of general inflation?"