avcacio

Ethanol Is Dead: How You Can Still Profit From It

Subsidy Eye - Here is a recent post (you asked for), on the Angry Bear blogspot concerning (vs) your "alarmist" post about how corn ethanol has caused the price of corn to go up by 50%... as you quoted...

angrybear.blogspot.com...

Saturday, June 28, 2008
Ethanol and food prices

It is my understanding that the major byproduct of ethanol is distillers grains that are used as feed for cattle, hogs and chicken with essentially the same nutritional value as feed grains that have not had ethanol distilled out of them. All distilling ethanol does is remove the starch from the food grains and leaves the protein, etc, that animals need to grow.

This means that the use of corn or other feed grains being used to produce ethanol does not divert feed grains out of the food chain.


A bushel of corn can be used to generate x pounds of beef or it can be used to generate z gallons of ethanol and almost the same x pounds of beef.

Doesn't this imply the argument I see on economic blog after economic blog that ethanol production is playing a significant role in higher food prices is incorrect.

Rather the Department of Agriculture and/or Bush Administration argument that ethanol production plays an insignificant role in the current run up in food prices is correct.

Does somebody have reasonable evidence that this analysis is incorrect?

UPDATE !!!!

The beauty of the new world of the internet.

while I was looking into this question I ran across a very good article by Richard Perrin at the University of Nebraska on Ethanol and Food Prices

digitalcommons.unl.edu.../

ABSTRACT:
Food prices in the U.S. rose dramatically in 2007 and early 2008. Given the integration of the world markets for foodstuffs, prices increased around the world as well, leading to riots in a number of countries in early 2008. The popular press has tended to attribute these food price increases to demand for corn by the ethanol industry. Grain prices are one determinant of food prices, but they constitute less than 5% of food costs in the U.S.(a higher percentage elsewhere.) This paper focuses on the likely relationship between ethanol and food prices, ignoring the potential role of other important contributors. It finds that ethanol is responsible for no more than 30-40% of the grain price increases of the last 18 months. Food prices in the US increased about 16% over the last five years,7% over the past 18 months, but rising grain prices have contributed only about a 3% cost increase over these periods. It is reasonable to conclude that ethanol is responsible for increases in US food prices about 1% in the last two years – a relatively small proportion of actual of U.S. food price increases. In food-insecure areas of the world,however, the impact of ethanol on food prices has been higher, perhaps as much as a 15% increase, simply because the typical food basket in those areas contains more direct grain consumption.

so I sent him an email with my question and he was nice enough to respond with this:


You are right. One-third of the corn processed for ethanol is expelled as distillers grains and solubles (DGS.) (One third is ethanol, one-third CO2.) DGS has slightly higher feed value than corn when it's fed to ruminants (I have a publication with an animal scientist on this issue, if you become deeply interested, and could direct you to some others.) Since DGS can be directly substituted for corn, putting a ton of corn into an ethanol plant really only extracts 2/3 ton from the animal feed supply, so it would have been reasonable for me to assert that ethanol has accounted for only 30% of new net withdrawals of the world's coarse grains since 2000 (rather than 40%.) China, Sub Saharan Africa, and South America are each responsible for about 15%.

So the standard treatment of ethanol in the press and blog is significantly misleading.

Ethanol Is Dead: How You Can Still Profit From It

Everyday Finance (author) - "Caution" This story of yours to call the death of a market (corn ethanol), at it's all time lows... may be similar to your May 02, 2008 call of "Calling It Quits on Gold, Platinum - It's Time to Go Financials!"... in which BOTH the gold and financials changed directions almost exactly on your story date to provide 20-30% losses to those who followed your suggestion. Just a note....

Ethanol Is Dead: How You Can Still Profit From It

Vegasjoe - I like your point about where we are currently sending all of our $$ for "thier" Oil... and to reaffirm my point which is this "slamming" of corn ethanol is a total waste of time in a world where you will be "Waiting in Line" to buy oil at 2X or 3X the current high price... and...

Subsidy Eye - That 3% figure was properly reported on Bloomberg from interviews of a recent conference attended by those directly concerned about this food/fuel issue. So your attempt to make the 3% issue look more like a 50% issue is possibly need of further study also.

Ethanol Is Dead: How You Can Still Profit From It

Good Luck on your bet against ethanol...

BUT remember the "Mad Max" movie in a world where oil is a big problem... in that world, ethanol would have a tremendous value. It looks to me that the US is heading for that direction...?? Also many of the negative comments against ethanol are "misleading" about the rise of corn prices caused by ethanol... which is only 3% in reality. There are obvious other factors pushing corn much higher than just the ethanol usage.