Thursday, August 9, 2012

Food prices increasing? It is that #%*^&^& Ethanol policy! See chart here for the damage. Paging Frederic Bastiat!!

Congress has mandated (not asked, not requested) that the nation produce 13.3 Billion gallons of ethanol to be an additive to fuel.  Big Picture Agriculture estimates it takes 4.7 Billion bushels of corn to produce that much ethanol.
 
This number of bushels of corn WILL BE taken out of the market for ethanol production, regardless of the total number of bushels of corn harvested.  Read that again.

If the drought reduces the total harvest below expectations, then there will be less corn for the food/feed market. This will put upward pressure on the price  of everything else that requires corn as an input.

A consequence "unseen" to policymakers, but very "seen" to the "good economist" (go HERE for a short explanation. If you were a student of mine, you already know)...

What Percent of this Year’s U.S. Corn Crop Will be Required to Fulfill the Ethanol Mandate?
Source: Big Picture Agriculture
From HERE: 

''I’ve simplified the answer to the question by ignoring RINS credits and ethanol in storage, cutting to the crux of the issue. And of course, final corn crop production numbers are premature.

To do my calculation, I used the following:
  • To produce the 13.2 billion gallons of ethanol mandated this year requires 4.7 billion bushels of corn.
  • U.S. corn yields may average 117.6 bushels an acre this year, according to the results of a survey of 1,900 growers by Farm Futures magazine. This would amount to 9.86 billion bushels.
In 2013 the ethanol mandate will rise to 13.8 billion gallons, an increase of 4.5 percent over this year.
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